A key witness in the Bermuda Fire & Marine Insurance Co. Ltd. trial yesterday countered suggestions by the company's liquidator that he should have known the company was heading for the rocks during the 1991 reorganisation.

Clare Montgomery, lawyer for Bermuda Fire's liquidator, yesterday continued questioning John Patterson, the company's former chief accountant and secretary.

Mr. Patterson sat in on most of the key meetings involving the company's management, finance committee, board of directors, auditors and lawyers.

She asked him about concerns over Bermuda Fire's future articulated by Judith Panchaud-White, then manager of Bermuda Fire's profitable life department.

On March 11, 1991 Mrs. Panchaud-White sent a memorandum to company chief executive Glenn Titterton. She was worried about the financial impact on the life insurance operations due to increasing requests for the department to release money from the reserves for the company.

"I'm sorry if I'm perceived not to be a `team player' however, I am very concerned about the future of BF&M (Bermuda Fire) and how it will be able to meet its cash commitments in the future,'' Ms Panchaud wrote.

Ms Montgomery suggested that the company was raiding the life department to shore up the increasing need for money by the runoff international operation.

"The company was using lifeco to support the deterioration in the international business,'' Ms Montgomery suggested.

"Lifeco was contributing to the well being of the whole company,'' Mr.

Patterson insisted.

"It wasn't there to support after 1991,'' Ms Montgomery shot back.

Mr. Patterson agreed Bermuda Fire could "possibly'' have been facing a "cash squeeze'' during the period as reinsurers were increasingly becoming slow to pay claims or were going into liquidation.

"I just do not recall her having such worries or talking with her about it,'' Mr. Patterson said.

Ms Montgomery asked whether Mrs. Panchaud-White had ever expressed such concerns about the company's future.

"If you had not shown me this letter I wouldn't have known,'' he said.

Mr. Patterson also stood by the company's policy of not reserving for potential pollution losses or for bad debt on incurred but not reported claims. The company didn't reserve for pollution because management believed its polices excluded environmental claims.

Various remarks that the pollution coverage might lead to a "volatile'' situation for the company were brought to his attention. Asked whether he discussed the issue with those in the company he said he believed and was told by the head of the international operation that pollution wasn't covered by the policies.

"I didn't see the need to concentrate on something that wasn't covered,'' he said.

A March 1990 letter from a Coopers & Lybrand actuary also recommended that the company make undiscounted reserves in case of further deterioration in claims against the international business.

Each year Tillinghast was estimating that the company needed to make additional reserves. For the 1989 financial year Tillinghast advised the company the potential claims had increased by a further $7.3 million undiscounted.

The Coopers & Lybrand actuary also suggested that the company might be "prudent'' to book undiscounted reserves.

Mr. Patterson said no-one had advised him about concerns about booking reserves discounted against investments.

In continued questions he said he appreciated the possibility that there was a potential for future deterioration in the international business.

Ms Montgomery asked whether he had a "grave concern'' about the potential for future massive losses and whether the company should have guarded against such a possibility.'' "I think we did guard by setting up the necessary reserves,'' he said. He was asked what he thought when the National Association of Insurance Commissioners stated in April 1991 that Bermuda Fire no longer met the capital and surplus requirements necessary to operate in the US. The regulatory body estimated that Bermuda Fire owed $3.5 million more than it had in assets.

"I allayed their fears and certified it to the contrary,'' Mr. Patterson said.

Later the Coopers & Lybrand actuary suggests that liability existed for pollution and that the company set up reserves. The actuary also noted that it would be "actuarially proper'' to add in bad debt on IBNR.

"I can't remember such a discussion,'' Mr. Patterson said. "...Bad debt on IBNR was a topic that was discussed...It was an outstanding issue with auditors.'' He said the auditors consistently agreed with management's position not to reserve for bad debt on IBNR because it wasn't possible to calculate.

Pollution he said was not covered by the company.

"I don't think they had a hard view on it,'' he said. "...All I'm saying they agreed with the position that was taken.'' Mr. Patterson continues giving testimony today.

BUSINESS BUC