A Bermuda-led initiative for a cross-border protocol in the Electric Mutual Liability Insurance Co. (EMLICO) case appears to have died, as a US federal judge declined to force mediation on Massachusetts insurance regulators and Bermuda liquidators.

And US District Judge Douglas Woodlock has asked for copies of secret documents that were presented to the Bermuda Supreme Court in confidence by the Bermuda liquidators.

Further, he has questioned liquidators as to whether or not they had been paid by EMLICO or General Electric Co. (GE) prior to taking control of the company.

The liquidators are battling to retain control of the estate of GE's insolvent insurer that in January was also claimed by Massachusetts.

But while calling on Wednesday for a "speedy resolution'', the judge opened the door to allow EMLICO's reinsurers to participate in the latest round of litigation.

It was after reading filings from reinsurers in their bid to be admitted to the proceedings as amicus curiae , as friends of the court, that the jurist placed the liquidators under closer scrutiny. He afforded them two weeks to respond to the reinsurers' submissions.

The liquidators are David E.W. Lines and Peter C.B. Mitchell of Coopers & Lybrand Bermuda, and their London partner Christopher Hughes.

Reinsurers had argued that GE's insurance claims to EMLICO will be massive and complex "both factually and legally, and allegedly involve billions of dollars.'' And GE, as the sole creditor, will have exclusive influence over decisions made by the liquidators, including to the extent that claims are covered by the EMLICO policies. It thus will have an effect on the eventual EMLICO claims to their reinsurers.

Given the complexity of the insurance claims, reinsurers said, and the highly subjective judgements that would be made about them, even a slight systematic bias could alter the value of claims by hundreds of millions of dollars.

US judge calls for `speedy' conclusion to EMLICO row Further, the Bermuda insolvency court has already said it is incapable of serving as an effective check on the claim settlements approved by the liquidators.

In such circumstances, the liquidators must be seen to be completely objective and independent of the creditor.

"In this unique case,'' they claimed, "there is evidence that the joint liquidators and their firm, Coopers & Lybrand, were intimately involved in advising GE and EMLICO on the redomestication to Bermuda before it occurred, as were nearly all of the counsel and advisors the joint liquidators have retained to assist them with the liquidation.

"The joint liquidators apparently have not disclosed this troubling fact to the Bermuda court, and indeed have sought to create the impression that they had no involvement with EMLICO prior to their appointment as joint provisional liquidators in October 1995.

"In light of this undisclosed prior involvement, the joint liquidators should not be presumed to be objective or independent.'' Judge Woodlock has two motions before him. The state's insurance commissioner wants to move the case back to state court where she would seek a receivership over EMLICO. The liquidators have moved to dismiss the commissioner's receivership petition, altogether.

The commissioner, Linda Ruthardt, had originally sought receivership in the Supreme Judicial Court (SJC) after being told by that court this January 5 that she had no authority to approve the redomestication of the insurer from Massachusetts to Bermuda in 1995.

The SJC had ruled that EMLICO had, in effect, never left the state and remained a Massachusetts insurer. She went back to court as the state regulator to then seek receivership of the insolvent Massachusetts insurer.

But the company is subject to a Bermuda Supreme Court liquidation order and liquidators had the SJC case moved to the US federal court.

Ms Ruthardt's motion for the case to be remanded back to the SJC is based on her belief that that is where the petition belongs. Insurance matters are generally within the jurisdiction of individual states, as opposed to federal authorities.

In light of the January 5 Massachusetts court ruling, the liquidators went back to the Bermuda Supreme Court seeking new directions.

They obtained an affirmation, in the absence of any opposing representations, that EMLICO remained a Bermuda company in liquidation and that its estate remained exclusively under their control.

Chief Justice Austin Ward's January 9 ruling came after he read the confidential memo from Mr. Lines. But in a surprise move this week Wednesday, Judge Woodlock asked for a copy of that memo.

He also asked liquidators for an affidavit today, detailing what, if any, payment they received from EMLICO or GE before their provisional appointment in 1995.

There was hope for an end to the jurisdictional tug of war after the Chief Justice's January 9 ruling, when he wrote to Judge Woodlock proposing a cross border protocol in which EMLICO would be jointly liquidated by the Bermuda liquidators and Ms Ruthardt as the state receiver.

The Chief Justice had requested that Judge Woodlock "direct'' Ms Ruthardt to enter into negotiations to achieve this joint effort, which could be referred to mediation, in the event talks toward that end failed.

After the proposed 30 days of talks, the two sides reported to the federal court that an impasse had been reached.

Although the commissioner would have accepted equal authority over the estate of the insolvent insurer, the liquidators would only offer her a junior role in the liquidation.

Judge Woodlock has now taken his cue from the commissioner's lawyers, who saw no future in continuing the talks with the help of a mediator. But he has served notice that he wants a speedy resolution to the issues.

The controversy over EMLICO spills over into the Privy Council in London later this month.

The legal battle began after reinsurers alleged that GE and EMLICO practised fraud on regulators in both jurisdictions by knowingly moving an insolvent insurer out of the US, to take advantage of a more "creditor friendly'' and tax-advantaged environment.

They claimed EMLICO had deceived regulators about their insolvency status, because Massachusetts officials would never have allowed a failing insurer to leave the state.

Reinsurers have insisted that the move to Bermuda will have the effect of forcing them to pay more reinsurance payments, faster.

EMLICO and GE have denied the allegations as completely false, and accuse reinsurers of simply trying to avoid paying what they are contractually obligated to pay.

WHAT THE JUDGE SAID There should be a speedy resolution; Secret documents given by Bermuda liquidators to Supreme Court should be handed to him; Liquidators should present an affidavit, detailing what, if any, payment they received from EMLICO or GE before their provisional appointment in 1995; He saw no future in continuing talks with a mediator.

COURTS CTS