EMLICO LIQUIDATORS MOVE PART OF CASE FROM STATE TO US COURT

EMLICO LIQUIDATORS MOVE PART OF CASE FROM STATE TO US COURT

The liquidators named by a Bermuda court to oversee Electric Mutual Liability Insurance Co.'s controversial insolvency have told a federal judge in Boston they are no longer relying on part of a key Bermuda court ruling.

But the United Kingdom Privy Council - the British commonwealth's highest court - said it wouldn't consider arguments by Kemper Reinsurance Co. lawyers that the liquidators should not even be party to the tangled case. Kemper and Lloyd's of London syndicates side with Massachusetts Insurance Commissioner Linda Ruthardt in contending that Emlico should not have relocated to Bermuda, where it filed for insolvency in October 1995.Meanwhile, the liquidators detoured through U.S. Bankruptcy Court here to remove one relatively small Emlico claim against Lloyd's from Massachusetts state courts to U.S. District Court Judge Douglas Woodlock's bench. Known as the ''Rose site'' case, it has been used by Lloyd's attorneys to seek documents pertaining to the Emlico case, lawyers said.

Mr. Woodlock set an April 1 deadline for all sides to argue several points, including whether the U.S. Foreign Sovereign Immunity Act protects the liquidators against action by Massachusetts. Ms. Ruthardt has said she wants to be named state receiver, then persuade the Bermuda court to let her oversee the Emlico windup, including control of its reinsurance contracts and other assets.

Mr. Woodlock and the Bermuda court have suggested arbitration to get the reinsurance claims process moving.

British lords sitting as the Privy Council are expected to take at least a month to rule on Kemper's arguments that an appeal refused by the Bermuda court over the Emlico insolvency case can go forward. The Bermuda chief justice in his Jan. 9 decision reaffirmed that Emlico is a Bermuda corporation and said ''no third party . . . (shall) interfere with the exercise by the Joint Liquidators of their powers in relation to the company (Emlico).''

One Boston lawyer familiar with the three-day Privy Council session said the lords termed the Bermuda justice's ex parte order ''improper.'' That order was handed down three days after the Massachusetts Supreme Judicial Court ruled that Ms. Ruthardt legally erred in allowing Emlico to move offshore after some 70 years as a Massachusetts-chartered, General Electric Co.-owned captive that insured GE's major liabilities, now mainly environmental and asbestos claims.

Emlico sought insolvency, saying it lacked about $500 million to pay claims. The liquidators say Lloyd's and Kemper Re are merely trying to delay their share of reinsurance to repay GE for money already spent to clean up many of its 600 polluted sites and asbestos claims in the United States.

Meantime, Ms. Ruthardt's lawyer, David Lesley, said he does not think removal of the ''Rose site'' case to federal court - for purposes of efficiency, the liquidators' spokesman said - via the bankruptcy proceeding will work. Section 304 of the bankruptcy code, which the liquidators cited, applies only to foreign companies - rarely insurers - and not to a Massachusetts company, which, state officials contend, Emlico still is, Mr. Lesley said.

Asked why only the Rose site case was removed when there are three other Emlico suits against Lloyd's in state court, liquidator spokesman Jerry Walsh said the other cases are inactive. Emlico wants to bundle all the claims against reinsurers, while Lloyd's wants to examine each claim, lawyers said.