A Bermuda-registered mutual insurer must pay as much as $300,000 to each of several directors and officers embroiled in litigation over the collapse of Adelphia Communications Corp., a federal judge in Philadelphia ruled.

The Wall Street Journal yesterday reported the ruling against Associated Electric & Gas Insurance Services Ltd., or Aegis, which was made late last week.

Aegis was also caught up in recent years in the high-profile Enron corporate scandal, with Enron being a member of the mutual company.

This week, the Wall Street Journal cited the case as being the latest involving high-profile corporate scandals to find that insurance companies must first pay legal defence costs, then collect from executives later if they can establish that the policies should never have been enforced.

In the 32-page memorandum and order, the court ruled that Aegis could not rescind a "directors and officers" insurance policy unilaterally but must pay defence costs until insurers receive a judgment that the policies can be legitimately rescinded.

"Insurance carriers do not function as courts of law," US District Judge Michael M. Baylson wrote. "If a carrier wants the unilateral right to refuse a payment called for in the policy, the policy should clearly state that right. This policy does not do so."

Although the ruling directly affects Aegis, which wrote the first $25 million of coverage, Chubb Corp.'s Federal Insurance Co. and XL Capital Ltd.'s Greenwich Insurance Co., which together wrote an additional $25 million, were also involved in the case. The defendants include Adelphia founder John Rigas, former chief financial officer Timothy J. Rigas, and former executive vice president Michael J. Rigas ? who face criminal-fraud charges in federal court in New York ? and also former board members James P. Rigas and Peter L. Venetis, who are defendants in civil class-action and securities lawsuits that also target the other Rigases.

"This is still the United States of America ? when there's a dispute you have to go to court and get a determination," Mark Keenan, Mr. Venetis's lawyer told The Wall Street Journal. "Until that's done, the policy's supposed to pay out according to its terms."

Aegis and Chubb declined to comment. A spokesman for XL Capital could also not be reached for comment.

An attorney for the Rigases, J. Bradford McIlvain, said the ruling "should provide comfort for all officers and directors whether they believe they're in similar, or not so similar, circumstances."

The Journal reported that the ruling came less than two weeks after a March 5 ruling by a state-court judge in New York that the same Chubb unit must pay defence costs for former Tyco International Ltd. Chief executive L. Dennis Kozlowski despite the insurer's assertion that Mr. Kozlowksi misrepresented Tyco's finances. In October, a Delaware court made a similar finding in a case involving Rite Aid Corp.

Most large companies buy directors-and-officers insurance coverage to protect them, their officers and directors against lawsuits.

However, in the wake of Enron Corp.'s collapse in late 2001 and subsequent high-profile corporate scandals, insurers have sought to rescind policies that they say were purchased through fraud or misrepresentation.

In addition, insurers have raised rates sharply and tightened the terms and conditions they write into the policies, making it easier to end coverage for a company or individuals implicated in wrongdoing.

The case involving Adelphia is complicated by the company's bankruptcy-court proceedings.

Board members each were allowed by the bankruptcy court to seek as much as $300,000 in legal costs under the $50 million insurance coverage. If the legal fees ultimately exceed $300,000 for any defendants, their attorneys would have to seek permission from the bankruptcy court to collect additional funds under the policy.

In his ruling, Judge Baylson said the insurers were bound by the policy to pay defence costs until it was rescinded, and that the insurers couldn't rescind the policy without a court judgment.

But the bankruptcy court had temporarily precluded such a judgment, Judge Baylson found. As a result the insurers must pay the defence costs, though they could attempt to recoup those costs later if they are ultimately able to rescind the policy.