Centre Solutions (US) Ltd., the Bermuda-based insurer which has effectively been in run-off since 2002, may face a policy claim for $421 million following an adverse court ruling in the United States.

This is according to a report in InsideBermuda, the monthly newsletter covering international finance issues related to the market here published by Miami-based KYC News Inc. In the ruling, which was issued on April 23, 2004, ZC Specialty Insurance Company (ZCSIC), a Centre Solutions insured, was held liable for the debts of a failed nursing home operator, Senior Living Properties LLC (SLP).

The report states that the ruling went against the declaratory judgment action ZCSIC had filed 13 months earlier in which it sought a ruling that it had no liability for any claims filed against SLP and its affiliates.

Plaintiffs in the case were ZCSIC of Texas and Centre Strategic Investments Holdings Inc. of Bermuda, the latter being dropped as a party on March 16, just one month before the ruling.

The court ruled that ZCSIC is a partner in the business of SLP and its affiliates and has a right to setoff payments made under surety bonds for the GMAC Commercial Mortgage Corporation and/or HCFP Funding Inc. The order states that the amount of the setoff shall be deferred until the trustee of Senior Living Properties LLC Trust, Dan B. Lain, seeks a monetary judgment from ZCSIC in another adversary proceeding. Mr. Lain filed the adversary proceeding for a monetary judgment of $421 million four days after the ruling, claiming that the figure represents SLP?s outstanding liabilities from operating the partnership with ZCSIC.

Inside Bermuda states that Mr. Lain took a further step towards collection at the beginning of May when he applied for a temporary restraining order and preliminary injunction against ZCSIC and Centre Solutions (US) Ltd. In that action, he sought to protect surety bonds that Centre Solutions issued in 1999 and 2000 to meet any shortfall if ZCSIC could not meet its financial obligations to third parties.

ZCSIC agreed to ?take no action to amend, terminate, cancel or modify? the bonds and an order to that effect was entered by the court on May 11.

According to InsideBermuda Mr. Lain had apparently been confident that ZCSIC would be held liable for SLP?s debts months before the dispute reached the courts. In a letter addressed to the firm?s directors and officers dated on January 26, he demanded that the $421 million claim be looked at as a liability and that ZCSIC make a demand to Centre Solutions that it perform under the terms of the security bonds. At the time the letter prompted a dismissive response from ZCSIC?s attorney, who confidently claimed the trustee?s demand was premature and ?inappropriate both in fact and in law.?

?No finding of liability has been made against ZCSIC, notwithstanding the trustee?s repeated and self-serving assertions that the evidence in favour of such a finding is ?overwhelming?,? wrote Michael Terrien of Jenner & Block.