NEW YORK-J.P. Morgan Chase & Co. and 11 insurers avoided a risky jury verdict with their $654 million settlement last week of the bank's $1.09 billion in claims under surety bonds covering defaulted oil and gas contracts with the bankrupt Enron Corp.

Under the deal, the insurers will pay J.P. Morgan Chase about $569 million in cash and assign to the bank rights of action against the Enron estate valued at $85 million.

The settlement ended a month-long trial in which insurers charged they had been duped into issuing bonds on purported Enron commodity sales to affiliates of the former Chase Manhattan Corp. that were really disguised loans to Enron from Chase. A jury in U.S. District Court in New York was about to begin deliberations in the case.

Both sides cited the risk of an all-or-nothing verdict as the key motive for settling. While Chase faced damaging evidence from internal e-mails that described pre-paid energy deals as "disguised loans," insurers faced the challenge of proving that they were totally unaware of the nature of the deals and that they relied on Chase's alleged misrepresentations, lawyers familiar with the case say.

The jury's decision would either have voided the surety bonds or obligated insurers to pay in full with interest, which would have brought the total claim to about $1.2 billion.

"It was a 100% probable maximum loss," one lawyer familiar with the case said. "There was no ability to mitigate that amount. It was all or nothing."

Given those circumstances, the settlement "appears to be an intelligent compromise all around," said Drew Berry, a partner with McCarter & English L.L.P. in Newark, N.J., who was not involved in the case.

The court battle arose from a series of deals in which a pair of Jersey, Channel Islands, companies affiliated with Chase-Mahonia Ltd. and Mahonia Natural Gas Ltd.-pre-paid Enron for future oil and gas deliveries. The contracts were secured with surety bonds and went into default shortly before Enron filed for bankruptcy in December 2001.

J.P. Morgan Chase sued the insurers for payment soon after Enron's Chapter 11 filing, but insurers countered that the bonds should be voided because the underlying contracts were shams. The Mahonia entities never intended to take delivery of any oil or gas, but instead were the first leg in a series of circular transactions in which Enron would buy back the same commodities at a higher price. The transactions thus amounted to disguised loans from Chase to Enron that could not legally be secured by sureties, the insurers charged.

Evidence produced at trial last month included several 1999 e-mails in which current J.P. Morgan Chase Vice Chairman Donald Layton-formerly head of international markets for Chase Manhattan-without referring to Enron specifically, describes the bank's involvement in pre-paid energy deals as "disguised loans." In testimony last Monday, Mr. Layton said that he did not recall whether he had the Enron deals in mind when he wrote the e-mails and that he didn't intend to suggest that such deals were deceptive.

Settlement talks got underway in earnest last Tuesday and continued throughout New Year's Day with three insurance company chief executives and bank officials pushing for a deal, lawyers familiar with the case say.

By Thursday morning, documents for a settlement between the bank and 10 of the insurers had been completed, with only one insurer-Liberty Mutual Insurance Co.-still holding out. Liberty joined the settlement later that morning as U.S. District Judge Jed S. Rakoff was instructing the jury.

Of the $654 million gross settlement amount, $110.2 million will be contributed by Chubb Corp.'s Federal Insurance Co.; $46.7 million by two units of CNA Financial Corp.; $92.3 million by Fireman's Fund Insurance Co.; $24.5 million by Hartford Fire Insurance Co.; $13.4 million by Liberty Mutual; $93.7 million by Lumbermens Mutual Casualty Co.; $33.2 million by SAFECO Insurance Co. of America; $80.4 million by St. Paul Fire & Marine Insurance Co.; and $159.6 million by two units of Travelers Property Casualty Corp.

Each of the insurers has the option of assigning its rights of action against the Enron estate under the bonds to J.P. Morgan Chase for 13 cents on the dollar, effectively giving each insurer a 13% credit against its gross settlement payment. If all 11 insurers exercise this option, the cash payments to the bank will total about $569 million, with rights of action valued at $85 million going to the bank.

Several of the insurers intend to take this approach.

Chubb, for example, said it will pay $95.8 million in cash after assigning its claims against Enron. Because Chubb set up a reserve in 2001 for its full exposure on Chase's claims, though, the settlement will result in an $88 million pretax credit to Chubb's fourth quarter 2002 earnings, the insurer said.

Others reporting that they will take the credit for an assignment of rights include Travelers, which announced that it will pay about $139 million in cash; CNA, which said it will pay $40.7 million; Hartford, which said it will pay $21 million; and Liberty Mutual, which said it will pay "less than $12 million."

J.P. Morgan Chase, meanwhile, announced that it will take a pretax charge of about $400 million in the fourth quarter of this year in connection with the settlement and another pending court case involving a separate Enron contract backed by a letter of credit.

"We believe our firm acted appropriately in all transactions involving the insurance companies," J.P. Morgan Chase Chairman and Chief Executive Officer William B. Harrison Jr. said in announcing the settlement and related charge. The risk of an adverse jury verdict compelled the bank to settle, Mr. Harrison said.