Gold Medal Insurance, a Bermuda captive, is to be sued in November for $230 million -- by its own parent company, General Mills.

"In effect, we are suing ourselves,'' said Ivy Bernhardson, associate general counsel of General Mills, the Golden Valley, Minnesota-based maker of Wheaties, Cheerios, Hamburger Helper and many other well-known consumer products. "The people who make the decisions for Gold Medal are not working for General Mills,'' said Bernhardson. "They have a duty to Gold Medal.'' The situation is complicated further because Gold Medal's Bermuda-based reinsurance subsidiary, Hopewell International, has used US bankruptcy and Bermuda court decisions to insulate itself from settlements or awards that General Mills might get through US courts or arbitration panels, General Mills said.

The company will most likely have to come to Bermuda to collect from Hopewell, which assumed much of the risk from Gold Medal.

General Mills paid $5.6 million in insurance premiums to Gold Medal during the 1994 fiscal year.

Hopewell so far has outfoxed the big guns at General Mills and Gold Medal, according to a recent article in Business Insurance magazine, which covered the September decision of US Bankruptcy Judge Tina Brozman in New York.

Hopewell, facing a possible lawsuit by Gold Medal, filed a bankruptcy reorganisation plan in New York that left little leverage for Gold Medal, the largest potential creditor of Hopewell.

The manoeuvre also effectively nullified a 1998 agreement between General Mills and Gold Medal to have an arbitrator determine the compensatory losses incurred by General Mills.

The cereal maker is now seeking $230 million, including interest.

"We decided that the best way to get our money is to go back to a Minnesota judge,'' Bernhardson said.

Hennepin County, Minnesota, District Judge John Sommerville, who heard arguments on Monday on a motion seeking summary judgment in favour of General Mills, rescinded the arbitration plan in June.

It is likely, because there are substantive questions of law, that the case will go to non-jury trial before retired Hennepin County Judge Robert Schiefelbein next month.

The case dates to 1994, when a contractor hired by General Mills sprayed millions of bushels of oats -- enough for 165 million boxes of Cheerios -- with pesticide Dursban, which is cheaper than Reldan, but is not approved for human consumption.

The pesticide contractor, George Roggy of Edina, went to jail.

General Mills filed a claim with Gold Medal after it dumped the product and took apart and sanitised all the equipment and storage vessels at several locations where the oats were stored.

General Mills said the bulk of its original $168.7 million loss was covered under a provision of its policy with Gold Medal that insured against "all risks of direct physical loss or damage to property insured and described.'' Gold Medal contracts with American Risk Management Corp., an independent company that manages captive programmes. American Risk Management hired Thomas Howell Group, an independent claim adjuster, to investigate the claim.

Gold Medal says it is not liable under the policy, because the Dursban case resulted in regulatory agency-related losses to General Mills and not the "physical loss or damage'' specified under the policy.

General Mills argues that any "reasonable expectation'' of the policy, under Minnesota law, would include damages related to spraying the product with a substance banned for such use by federal authorities.

Separately, in 1998, the National Union Fire Insurance Co., a unit of American International Group (AIG), reportedly settled for $17.5 million a $114.8 million claim that General Mills made under a "malicious tampering'' policy that National Union underwrote.

COURTS CTS