The Bermuda Fire & Marine Co. Ltd. civil case currently under way in Supreme Court is like an argument over inheritance in which lawyers are arguing over a corpse that refuses to be buried.

Bermuda Fire liquidators are attempting to show that the former finance committee directors, accountancy, and legal advisor knew or suspected the company was insolvent by the time they split the profitable domestic operations off as BF&M Ltd., leaving behind the money losing international business.

Bermuda Fire liquidators Ernst & Young are also attempting to seize back the shares in BF&M Ltd., the company created to hold the domestic business, saying because the transaction was fraudulent, the business actually belonged to the creditors.

Ernst & Young lawyer Gabriel Moss has spent six days and counting in an opening argument describing what he termed the company's "painful history of the deterioration'' to when the international business was jettisoned in a bid to save the domestic business from the weight of an eventual $450 million in claims owed to US companies.

By referring to documents and witnesses he will use he's trying to show a pattern of growing awareness by the five directors of the impending failure of Bermuda Fire and by implication their intent to defraud the creditors.

Along the way he is also drawing Bermuda Fire's accountants Coopers & Lines and legal advisor Conyers Dill & Pearman into the web he is constructing.

Mr. Moss hopes to back his opening argument with documentary evidence and through seven witnesses. The documents consist of board minutes, letters, reports, faxes, and newspaper stories.

The defendants will be contesting Mr. Moss' interpretation of the documents and will also present their witnesses to convince Puisne Judge Vincent Meerabux that their clients did nothing wrong.

Mr. Moss' strategy seems to have been to potentially pit some of the defendants against each other. As could be seen from some of the early interjections by the defendants lawyers into Mr. Moss' opening remarks the various defendants might be attempting to claim they acted on the best knowledge available at the time.

Insurer returns to haunt directors Robin Potts, lawyer for the directors, might attempt to claim that they only sat on the finance committee and gave recommendations to the board of directors. It was the board who were responsible for making the decision to split Bermuda Fire into two.

Mr. Potts might also claim that the directors relied on figures from Coopers & Lines, actuarial firm Tillinghast, and on legal advice from Conyers Dill & Pearman. The firms in turn might deny responsibility by putting forward the claim they were only acting on instructions from their client Bermuda Fire.

Bermuda Fire was incorporated in 1903, writing business in the local market as a profitable general insurer for underwriting motor, marine, property, casualty, life and health risks.

The company got into trouble when in 1968 the board and management decided to underwrite international business in the London market. Unfortunately Bermuda Fire picked H S Weavers (Underwriting) Agencies Ltd. to underwrite the international business.

Weavers was a firm director Donald Lines was later to label a "bunch of crooks'' in a board meeting, according to Mr. Moss. Another director also lamented that it was as if Bermuda Fire "gave its pen away'' to Weavers, a description Mr. Moss claimed was a reference that the company had not kept proper management controls on what business Bermuda Fire was insuring and reinsuring. Weavers was the largest underwriting agent then writing US risks in the London market and Bermuda Fire was in for a ride which lasted into the 1980s when the insurance industry would be hit hard by first asbestos and then pollution related claims.

The US Environmental Protection Agency swung into action during the mid-1980s, taking companies to task for a billions of dollars worth of pollution damage.

Many companies were hit hard years after the period in which they had collected the premiums. Some were able to withstand the losses. Others like Bermuda Fire would not.

Bermuda Fire was also writing international business through Bermuda London Underwriting Agency Ltd. and Drivers.

By 1985 the Bermuda Fire management and board was alarmed enough by the mounting losses and what lay ahead and terminated writing any new international business. But the decision was too late and didn't protect the company from further claims for years the international division had been in operation.

Bermuda Fire chief executive officer Colin Young took early retirement because the company "considered that he had demonstrated incompetence in the handling of the Weavers' business,'' according to the liquidators.

Cyril Rance was appointed in his place. At a board meeting in September 1986, director Ernest Vesey -- now deceased -- stated that the new directors joining the board would be told "that the company was skating on very thin ice''.

Losses began mounting and the company began "raiding the piggybank'' by using surpluses from the profitable business -- mainly the life insurance operation -- to pay for the claims and projected claims on the international operation, according to Mr. Moss. During one finance committee meeting, when the shock of the mounting losses hit them William Cox stated that Bermuda Fire should sue Coopers & Lines, Mr. Moss claimed.

"Not surprisingly the suggestion was squashed by Donald Lines since his brother David was a partner in Cooper & Lines,'' Mr. Moss said.

In 1988 the suggestion was first put forward by Charles Collis that the company obtain stop loss insurance, enter into an agreement with Weavers, or reorganise or restructure.

Mr. Collis subsequently sent his son John Collis at Conyers Dill & Pearman an internal memorandum to "effectively, to isolate the Weavers' business in a single company and to carry on the remaining businesses in another company or other companies'' according to Mr. Moss.

Bermuda Fire had attempted to protect itself by taking out reinsurance on its international book an "alphabet soup'' of reinsurers, Mr. Moss said. Some were big names like Munich Re and could withstand the losses hitting the market. But others -- like Mentor -- would themselves fail leaving Bermuda Fire still on the hook for the liabilities.

Mr. Moss contends the 1991 transaction was partially "grossly underestimated'' because the defendants didn't take into account the possibility they would not be able to collect from some of the reinsurers.

In 1988 stop loss cover was taken out which would cover total losses from the $32 million to $50 million range. By 1991 Mr. Moss contends the stop loss cover was breached or was about to be breached.

In 1988 Bermuda Fire took $2.6 million out of its life division to cover estimated losses in the international business. Ian Michie, the life division's actuary, had been pressing for segregating the life operations from the international business to protect the policyholders. The international business continued making losses. The division paid out $5.4 million in claims in 1988 and needed estimated undiscounted reserves of $35.5 million. Paid claims rose to $5.6 million undiscounted reserves to $37.3 million in 1989.

By 1990 the finance committee instructed Mr. Rance to contact investment bank J.P Morgan to review the company's operations. Mr. Moss claims that around this time a reorganisation sub-committee was formed and that accountant Tom Miller of Coopers and Lines was involved in advising on splitting Bermuda Fire into two.

Mr. Miller subsequently wrote a memorandum with a five part plan to reorganise Bermuda Fire. The reorganisation would begin with the incorporation of a new holding company, and subsidiaries to hold Bermuda Fire's life, health, domestic general business, property and other businesses.

Insurer haunts former directors Mr. Miller then concluded with a paragraph titled "The Necessity of `Going all the Way''' in which he advised that the profitable local business would be lost under the mounting losses from the international business unless the five steps were taken to create the new companies.

In 1990 the international business paid claims of $5.8 million had topped up reserves to meet undiscounted estimates of $41.9 million in claims.

In April 1991 J. P. Morgan estimated that the domestic business was worth $78 million while the international business had a negative worth of $48 million.

J.P. Morgan also stated that they could not reach a proper view on the spin-off option due to a lack of legal advice.

David Lines of Coopers & Lines agreed to consider valuating the business for reorganisation in a letter May 22, 1991, according to Mr. Moss. Glenn Titterton became president and chief executive officer of Bermuda FIre in January 1991.

In a Press release on August 8, 1991 Bermuda Fire announced it was proposing to reorganise as a continuation of the strategy started at the time its life and health business was transferred to Lifeco. Share holders were later told Bermuda Fire would continue to conduct international business while newly created BF&M would conduct domestic business.

At the time Coopers & Lines produced a proforma balance sheet showing that Bermuda Fire's international operation had a $12 million surplus. This balance sheet was put forward to the Registrar of Companies Malcolm Butterfield in getting approval for the 1991 split.

Under the 1991 deal newly-created BF&M paid Bermuda Fire $56 million for its domestic business with $10 million in cash, a loan note of $3.5 million, one million of nine percent convertible cumulative redeemable preference shares in BF&M and 2.88 million common shares.

The common shares were immediately dividended out to Bermuda Fire shareholders. The $10 million, raised from the Bank of Bermuda Ltd. and Bank of N.T. Butterfield and Son Ltd., was used to pay off Bermuda Fire preference shareholders.

"This was really something that was done to bits of paper but left the creditors in the lurch,'' Mr. Moss claimed. "The 1991 transaction was a fraudulent conveyance of property with the intention to defraud the creditors of the intentional business.'' Charles Collis and William Cox subsequently swore an affidavit on August 28, 1991 confirming that to their knowledge Bermuda Fire was solvent. The affidavit was needed for the company to convert preference shares into redeemable preference shares.

The company's common shareholders approved the reorganisation on August 28.

The split was made in September. Mr. Moss will have to show that the intention to defraud the company's creditors was in the minds of the directors to make his case. This he is trying to construct by showing it was impossible for the directors on the finance committee not to have known Bermuda Fire international operation was insolvent without the stream of profits from the domestic business.

He will have to show that the finance committee was "the heart and mind'' as he calls it of the board of directors and therefore pushed them into making an "unlawful distribution'' of the company's assets through the share dividend in BF&M.

He will also have to show that Coopers & Lines and Conyers Dill & Pearman put their names to the transaction knowing or suspecting that Bermuda Fire would fail without the domestic business to generate profits.

Missing from the goings on in court so far is the defendants' view on the facts before Judge Meerabux. They have their own phalanx of lawyers and are spending huge sums to put forward their case. Once Mr. Moss sits down it will be their turn at the wheel.