Arbitration in the dispute between Aioi Insurance Company of Japan and North Carolina's Fortress Re - which has a Bermuda subsidiary - was halted recently in order for emergency depositions to be taken in Japan, according to a report in the Internet publication, InsideBermuda.

It has been reported that North Carolina insurance company Fortress Re had ceded hundreds of millions of dollars to its Bermuda subsidiary, Carolina Re which went into liquidation last December.

Carolina Re then paid more than $400 million in dividends to its owners who were also the principals of Fortress Re.

When the Japanese insurers on whose behalf Fortress Re had written insurance policies sought to recover claims stemming from a series of aviation disasters culminating in the September 11 terror attacks, they found that both Fortress and Carolina were insolvent.

Carolina Re which should have paid out an estimated $600 million had just $62 million in assets.

According to InsideBermuda the hearings were already underway when Fortress Re requested depositions of four current or former employees of Aioi.

"Fortress Re and Aioi are in dispute over the latter's participation in the reinsurance pool, which went into run-off in December, 2001 in the wake of World Trade Center losses of up to $3 billion," the story in InsideBermuda said.

"Fortress Re and its controllers, Maurice D. Sabbah, his wife, Zmira Sabbah; and Kenneth H. Kornfeld, all of North Carolina, have been accused of siphoning approximately $470 million of premiums to Bermuda-registered Carolina Re.

"Aioi terminated its participation in the pool effective June 30, 2002, leading to Fortress serving it with a demand for arbitration less than a month later. Aioi later served Fortress with a counter-demand."

The internet publication said depositions were scheduled to take place between May 19, 2003 and June 6, 2003 at the US Embassy in Tokyo.

"Meanwhile, the joint liquidators of Carolina Re, John McKenna and Gareth Hughes, are continuing their search for assets to pay off its massive liabilities," it said.