Bermuda-based insurers PXRE Group Ltd. and PartnerRe have been caught up with several other insurers in lawsuits involving a rogue insurance agent.

According to an article in industry magazine Business Insurance, Harold Mollin MGA of Worldwide Weather fled to Thailand in order to escape multiple legal actions against him in the US.

But he now finds himself embroiled in the Thai court system, having became a key witness to a murder investigation, a plaintiff in a fraud case and a defendant in a defamation case in Bangkok.

Back in the US, the complicated litigation involves the weather derivative business.

Weather derivative contracts cover energy companies for losses incurred due to unexpectedly warm weather over a defined period.

The article describes how a Bermuda rent-a-captive company Palladium Insurance Ltd., was writing weather derivative contracts covering energy companies in mid-1999.

Palladium and its Platinum Indemnity Ltd. (unrelated to the Platinum Underwriters group) secured their obligations with letters of credit from Bank of America.

The LOCs required reinsurance and Palladium and Platinum placed reinsurance through Worldwide Weather, first with Terra Nova Insurance Co. Ltd, then with Diamond State Insurance Co. and lastly with General Star Indemnity Co., a unit of GeneralCologne Re.

However all three insurers say they never intended Worldwide Weather to bind them as reinsurers on the derivative policies. Diamond State is now suing Mr. Mollin in New York, claiming that he went beyond the scope of their contract with Worldwide Weather, writing derivative business and reinsurance policies without authority.

According to the Business Insurance article, Mr. Mollin apparently collected $7.4 million from Platinum in reinsurance premiums. He concealed the true details of the contracts from Diamond State, instead reporting dummy primary insurance policies naming an affiliate "Worldwide Weather" as the insured. He passed on the $7.4 million as premium for the insurance policy.

When Diamond State discovered that their rogue agent was writing policies beyond his authority, they cancelled Worldwide Weather's authority and confronted Mr. Mollin. He said he would cancel the policies if they returned the $7.4 million. However, Mr. Mollin continued to issue ten more Diamond State reinsurance policies to Platinum and along with teh $7.4 million, pocketed additional millions in premiums before fleeing the country.

A US District Judge in New York ruled last month that Diamond State may proceed with the litigation and simultaneously ruled that they must arbitrate a dispute with PartnerRe.

PartnerRe apparently entered the fray as a reinsurer to Diamond State who ceded 90 percent of the derivative business to PartnerRe's US based reinsurance company.

Diamond State claim that PartnerRe should have investigated Mr. Mollin's background and should be held liable if Diamond State is found negligent and required to pay the derivative losses.

Business Insurance also reported a separate but related action where a jury in US District Court in Newark last summer ordered Terra Nova to pay $9.8 million to Bermuda-based PXRE under two reinsurance policies written by Worldwide Weather covering derivative contracts issued by PXRE. Terra Nova is appealing the award.