XL Capital has asked a Birmingham, Alabama court to rule on whether it is permissible for it to pay the legal fees of executives of a bankrupt insurance company against lawsuits.

The Birmingham News reported that XL said in a filing last week with US Bankruptcy Court in Birmingham that Vesta Insurance Group executives including chairman Norman Gayle want money to defend a Jefferson County lawsuit that accuses them of ruining the company.

XL Insurance said in its filing that the executives have asked for legal fees after being sued in Jefferson County Circuit Court and accused of ?maliciously, wantonly and negligently? mismanaging the company. Unpaid bondholders filed the suit in July.

The newspaper said that during corporate bankruptcies such as Vesta?s, most financial transactions require a supervising judge?s approval. XL Insurance said it knows such payments from an insurer to executives of a bankrupt company aren?t usually subject to court supervision, but that it filed its motion ?out of an abundance of caution.?

The payment of the legal fees is set for a hearing later this month. Birmingham-based Vesta, an auto and homeowner?s insurer, was thrown into bankruptcy by angry creditors in August. It is now wrapping up operations after it went insolvent this summer and was shut by regulators from Texas, Hawaii and Florida, where the company did most of its business.

Vesta was once one of Birmingham?s top publicly traded companies, with a stock price of $50 a share in 1998.

That?s when the first case of improper accounting hit, costing CEO Robert Huffman his job and most of the company?s market value after tens of millions of profits were erased and shifted to periods other than their original ones.

More accounting problems emerged. The company didn?t file quarterly reports with the Securities and Exchange Commission for the two years ended July, citing unspecified problems with the books. Bankruptcy documents later showed Vesta had a $17.3 million loss in 2004, a year during which it spent $316,000 on new vehicles for top executives and $676,000 to improve a hunting lodge.

Vesta has assets of $14.9 million and liabilities of $214.3 million. Bondholders who lent money expecting to be repaid with interest are owed $58.8 million.