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BOSTON -- The Electric Mutual Liability Insurance Co. insolvency, which spawned one of the messiest reinsurance and regulatory disputes in recent memory, is about to grow much quieter.

Barring an appellate victory, the Massachusetts Insurance Division has lost in its effort to retrieve the EMLICO estate from liquidators in Bermuda, which is where the General Electric Co. insurer redomesticated in 1995.

All of the reinsurers that originally challenged the redomestication in court have settled, including London market insurers that may have agreed to pay GE and EMLICO as much as $500 million.

Several reinsurers -- including Commercial Union Insurance Co. -- are still disputing GE claims, but they are doing so in arbitrations out of public view.

With the storm apparently subsiding, then, observers last week debated the extent of any damage to the various parties involved, from GE to EMLICO's reinsurers to the Massachusetts Division itself, was a source of speculation among observers.

Reinsurance lawyers and others familiar with the case differ over whether GE emerged a victor in its agreement with London insurers and earlier settlements with Kemper Reinsurance Co. and other reinsurance companies.

Most agree on another point, though: Both GE and Massachusetts regulators have suffered embarrassing black eyes in the insurance and regulatory communities as a result of the EMLICO controversy.

"It was an embarrassment, and I think there were significant lapses of judgment both on the part of GE and on the part of the insurance commissioner in Massachusetts," said a regulatory source not involved in the case who requested anonymity.

"This was a very unpleasant case for all of the parties," agreed David Spector, a reinsurance lawyer with Hopkins & Sutter in Chicago who is not directly involved in the matter.

EMLICO, a longtime GE liability insurer, won Massachusetts regulators' permission to move to Bermuda in 1995. Within months, it declared itself massively underreserved for GE asbestos and pollution liabilities and filed for liquidation.

Several reinsurers, unaware of the move until the liquidation filing, charged that EMLICO and GE had fraudulently conspired to hide the insurer's insolvency to take advantage of Bermuda liquidation laws that would accelerate reinsurance recoveries.

An international legal war followed, drawing in EMLICO, GE, several reinsurers and regulators in Bermuda and Massachusetts.

Massachusetts Insurance Commissioner Linda Ruthardt tried to resolve the conflict last year with a proposed deal in which she would have become ancillary receiver to EMLICO's Bermuda liquidators, partners of Coopers & Lybrand L.L.P., now PricewaterhouseCoopers.

Reinsurers led by Kemper Re objected to the deal, though, and the Massachusetts Supreme Judicial Court threw it out in January, ruling that the insurance division never had the authority to allow the redomestication in the first place and that EMLICO -- regardless of its corporate status in Bermuda -- remained a Massachusetts insurance company.

The Insurance Division responded by filing a receivership petition, but Supreme Judicial Court Justice John M. Greaney rejected it in a ruling last month (BI, Sept. 28).

"I am satisfied that EMLICO Ltd. is a lawful Bermuda corporation. . .and that the assets which would have been the subject of a Massachusetts receivership are in control of the (Bermuda) joint liquidators of EMLICO Ltd. and are being administered in accordance with Bermuda law," Justice Greaney wrote. "It follows in my mind that Bermuda has lawful jurisdiction over the liquidation."

"There is, to be sure, a seriously disputed question whether EMLICO and General Electric engaged in fraud or other wrongdoing in obtaining approval from the commissioner to redomesticate EMLICO to Bermuda. This question, if it is to be resolved at all, is to be answered in other proceedings in other fora," the judge also wrote.

Noting that practicality weighs against a Massachusetts receivership, Justice Greaney also said the Insurance Division may seek the Bermuda liquidators' permission to act as ancillary receiver and that he would consider another petition from Ms. Ruthardt if she gets that permission.

Several observers speculated that the outcome of the receivership case didn't disappoint Massachusetts regulators.

"In many ways, I think the Massachusetts Division of Insurance felt they were obligated by the (January Supreme Judicial Court) ruling to file the receivership petition, and I'm not sure that they don't welcome this resolution," Mr. Spector said.

"She got what she wanted. She got rid of it," a regulatory source said, referring to Ms. Ruthardt.

David Leslie, a lawyer representing the division, denied this, however. "We aggressively pursued the U.S. receivership for EMLICO. I don't think we pulled any punches," he said.

The Insurance Division has not decided whether to appeal to the full Supreme Judicial Court.

Mr. Leslie, with Rackemann, Sawyer & Brewster in Boston, added that regulators also are weighing whether to proceed with an investigation into the fraud allegations against GE and EMLICO, possibly as part of an examination of Electric Insurance Co., a former EMLICO unit that remains in Massachusetts.

Several lawyers, meanwhile, say that Justice Greaney's ruling may have been heavily influenced by the fact that all of the reinsurers that originally sued to reverse the redomestication -- London market insurers, Kemper Re, General Re Corp. units and Allstate Insurance Co. -- had reached settlement agreements with GE and EMLICO. London insurers, the last to settle, informed Justice Greaney of their intended deal shortly before a hearing on the receivership petition last month.

"This is not mere happenstance that this settlement was announced just before oral arguments were scheduled to begin," said one lawyer familiar with the case.

In fact, among several reasons for rejecting the receivership, Justice Greaney noted that "no Massachusetts party or interest will be harmed by the ongoing liquidation in Bermuda. The reinsurers which previously appeared in this proceeding have settled, or are in the process of settling, their disputes with EMLICO Ltd."

While GE may have won the Bermuda liquidation it wanted, the question of whether it emerged the victor in its deals with reinsurers is a matter of debate.

U.S. and London sources say that London market insurers, including Equitas Ltd. on behalf of Lloyd's of London underwriters, have reached an agreement in principle -- still to be finalized -- to settle direct insurance and reinsurance claims with GE and EMLICO for about $500 million.

GE officials have said that London market insurers represent about half of EMLICO's recoverables, and lawyers familiar with the case say that the $500 million represents a fraction -- perhaps half -- of what GE and EMLICO had demanded from the London market.

The proposed deal follows the June announcement of a settlement among GE and EMLICO and Kemper Re and the August announcement that Kemper Re was being acquired by a unit of GE Capital Corp. The unit, GE Global Insurance Holding Corp., will pay $463.5 million in cash for Kemper Re, according to Securities and Exchange Commission filings.

Some EMLICO observers say that GE's concerns about ongoing litigation, bad publicity and the prospect of a U.S. receivership allowed London market insurers and Kemper Re to win better deals than they could have hoped for in either a U.S. or Bermuda liquidation.

"I think this was all damage control on GE's part," one regulatory source said. "The real economic beneficiaries of it are the two reinsurers that (complained) the loudest," Kemper Re and the London market.

A GE spokesman refused to comment on terms of the settlements, and a GE official said he could not comment on other issues involving the deals.

David Lines, a PricewaterhouseCoopers partner and EMLICO liquidator, could not be reached.

Some observers aren't so sure the deals -- particularly the London market agreement -- are so bad for GE.

Kemper Re's earlier settlement may actually have pushed the London insurers to the bargaining table, one reinsurance lawyer familiar with EMLICO said.

One thing most observers agree on is that the reputations of both GE and the Massachusetts Insurance Division have suffered throughout the EMLICO debacle.

"GE has been a big loser. They have taken a bloodbath in the court of public opinion and in the regulatory community, and they're one of the biggest insurance groups in the U.S.," according to one reinsurance attorney.

"It will take GE a while to get over this," the source said. "Everybody in the regulatory community knows what happened."

Another reinsurance lawyer, however, said that the insurance market and regulators generally view GE's other insurance operations -- principally Employers Reinsurance Corp. -- as unconnected to the EMLICO controversy, and he predicted that any residual bad feelings between GE and regulators will disappear.

"My guess is that regulators will say it's all litigation and posturing, and they'll forget about it," he said.

Massachusetts regulators' reputations have also taken a beating.

"This is just one more fiasco for state insolvency regulation," a reinsurance attorney said. "They allow this huge redomestication after a 30-minute hearing without hearing from other parties."

The Massachusetts Division "went along with the suggestion that (EMLICO's redomestication) be done virtually invisibly," a regulatory source in another state agreed.

A coalition of consumer groups in Massachusetts last week called on acting Gov. Paul Cellucci to fire Ms. Ruthardt, citing EMLICO and several other actions that have attracted controversy. A spokeswoman for Ms. Ruthardt dismissed the groups' charges as a "rehash," according to a story in The Boston Globe.

Ms. Ruthardt's spokeswoman could not be reached.

Another thing most observers agree on is that the circumstances of the EMLICO saga are so unusual that regulators are unlikely to see another such case again.

"It's been one of the longest-running soap operas in the business," one reinsurance official said.