Joint liquidators of Bermuda Fire & Marine Insurance Company Ltd. (BFMIC) have set the wheels in motion for what is likely to be the most scrutinised chapter in the troubled insurance company's story.

The liquidators, Mr. Anthony Joaquin, a partner at Ernst & Young Bermuda and Mr. Gareth Hughes, a partner at Ernst & Young UK, commenced legal action yesterday against BF&M Ltd.

A writ filed with Bermuda's Supreme Court by the liquidators cites BF&M Ltd., several of its subsidiaries, some BFMIC directors as well as BFMIC's law and accounting firms as defendants.

The move comes ten months after Bermuda Supreme Court put BFMIC into liquidation.

Since December, liquidators have conducted a lengthy investigation into the most controversial part of the break up of BFMIC -- the 1991 reorganisation -- when the company's domestic general insurance business was transferred to the BF&M group.

Failure to negotiate the matter to a satisfactory conclusion has left only a legal avenue to resolve the matter, the liquidators said.

"Having received legal advice in relation to the 1991 reorganisation (the liquidators) had no option but to pursue the present litigation in the absence of a sensible and realistic settlement proposal from the defendants,'' said Mr. Joaquin.

BF&M, in its prepared release, called the legal action "unjustified''.

BF&M also said the evidence fails to support liquidators' claims.

"The liquidators have previously made available to BF&M the evidence which they rely on in support of their claims,'' BF&M said.

"That evidence has been reviewed by BF&M and its lawyers.

"The company has been advised that the evidence does not support the claims made in the writ and that BF&M and its subsidiaries all have good defences to those claims.

"The proceedings will be vigorously defended,'' said BF&M.

BFMIC directors cited are; Mr. Charles T. M. Collis, Mr. William M. Cox, Mr.

Donald P. Lines, Mr. Gregory D. Haycock and Mr. John Michael Collier.

Conyers, Dill & Pearman and Cooper & Lines, BFMIC's law and accounting firms, were also named.

BF&M Ltd. subsidiaries named were; BF&M General Insurance Company Ltd., BF&M Life Insurance Company Ltd., BF&M Management Ltd., BF&M Properties Ltd., Fortress Insurance Company Ltd., The Hamilton Reinsurance Company Ltd. and Woodbourne Insurance Company Ltd.

"The proceedings follow the conclusion of a full and detailed investigation of BFMIC's affairs, particularly the 1991 reorganisation.

"Before commencing proceedings the liquidators (had) sought and obtained legal advice from solicitors and counsel both in Bermuda and London,'' the liquidators said.

The current dispute concerns ownership or compensation for the loss of ownership of the domestic business formerly conducted by BFMIC and currently controlled by BF&M, said the liquidators.

"There is no reason why this should have a direct bearing on the stability, financial or otherwise, of that domestic business.

"(The liquidators) recognise and understand that the interests of the creditors of BFMIC would be best served by preserving the value of these businesses on a going concern basis,'' they said.

BF&M president and CEO Mr. Glenn Titterton and Mr. Joaquin told The Royal Gazette yesterday afternoon they could not add anything further at this time.

The firm Milligan-Whyte & Smith is counsel for the liquidators.