Liability Insurance Co. (EMLICO) have told a Massachusetts court that a settlement agreement, proposed for EMLICO by the state's insurance regulators, is "the best vehicle to achieve an orderly liquidation'' of the company.

The court may rule later for or against the settlement agreement. Some EMLICO reinsurers are against the proposal and want EMLICO, which was moved to Bermuda in a controversial move in 1995, returned to Massachusetts.

A Bermuda court has approved the settlement "and authorised and directed the joint liquidators to enter into the receivers' agreement.'' Stopping a US insurer, lawyers argued, from redomesticating (or moving) to "any other state'' would be inconsistent with the intent of US lawmakers and "contrary to the Commonwealth's interest in promoting international commerce''.

They said the word "state'' means both US states of the union, and foreign countries such as Bermuda. That interpretation reflects the international scope of the insurance industry and avoids doubt as to the statute's constitutionality.

They argued the Supreme Judicial Court should confer substantial deference to the commissioner's proposed settlement agreement.

Lawyers said that emplacing the commissioner as US receiver would enable "the commissioner and the joint liquidators to coordinate their efforts...overcome many of the substantive differences in the insolvency laws of the two jurisdictions...and resolve many procedural differences.'' They said any court ruling that the redomestication decision was invalid would have no effect on the legal sufficiency of the commissioner's petition for a receiver's agreement.

Similarly, a finding that Bermuda is not a "state'' as recognised by Massachusetts legislation would not alter EMLICO's status as an insolvent Bermuda insurer. Bermuda law expressly prohibits the discontinuance of an insolvent insurer.

The court was told that US courts could not disturb the official acts of a foreign state. And the continuance of EMLICO to Bermuda and the exercise of jurisdiction by the Bermuda court are official acts of a foreign state. When a company is domiciled in a foreign state, the Act of State doctrine prohibits a US court from making an order which purports to affect the corporate status of the company.

Lawyers also denied reinsurers' claims that because EMLICO was moved to Bermuda, they will have to pay more to EMLICO.

They said, "That is nonsense. Over the last 30 years, reinsurers agreed to indemnify EMLICO for liabilities to General Electric Co. (GE) -- liabilities which must be reckoned with whether EMLICO is domiciled in Bermuda or Massachusetts.

"Indeed, long before the redomestication to Bermuda, EMLICO demanded reimbursement from its reinsurers for claims settled with GE. The reinsurers refused to honour their contractual obligations then, just as they continue to avoid them today.

"The reinsurers have not been harmed by EMLICO's move to Bermuda, and they have the same contractual rights and are in the same position they would have been in had EMLICO remained in Massachusetts.'' EMLICO decided in 1995 to reorganise its insurance operations due to its potential exposure to hundreds of millions of dollars in long-tail asbestos and environmental claims by its principal policyholder, GE. The potential exposure posed financial risks and uncertainties to non-GE policyholders in the event of adverse developments, which necessitated the plan to isolate the GE business from the non-GE business.

But on October 20, 1995, less than four months after bringing the troubled GE business to Bermuda, EMLICO filed for a winding up petition in the Bermuda Supreme Court, requiring substantial increases in its statutorily-mandated reserves for asbestos and environmental claims.

Other major casualty insurers moving to shore up reserves for asbestos and environmental claims included: Fireman's Fund Insurance Co. which boosted its reserves from $600 million to $1.4 billion in June 1995; Aetna Life & Casualty Co. increased its reserves by $750 million in July 1995; Swiss Re America bumped up reserves by $700 million in August 1995; CIGNA said it would take a $1.2 billion pre-tax charge to bolster loss reserves, including $860 million for environmental claims in October 1995; Nationwide Insurance Co. increased relevant reserves by $1.1 billion in December 1995; and, Kemper Re increased reserves for asbestos and environmental claims by $400 million in 1996.

COURTS CTS