Court Opinion

ID: 196152
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:58:53+00
Date Added: 2024-06-11T13:09:24.904244
License: Public Domain

J      u      n      e   2      2      ,   1      9      9      5
                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT

                                         

No. 93-2338

      COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, ET AL.,

                   Plaintiffs, Appellants,

                              v.

         NEW ENGLAND REINSURANCE CORPORATION, ET AL.,

                    Defendants, Appellees.

                                         

No. 93-2339

      COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, ET AL.,

                    Plaintiffs, Appellees,

                              v.

         NEW ENGLAND REINSURANCE CORPORATION, ET AL.,

                   Defendants, Appellants.
                                         

                         ERRATA SHEET

The opinion of this court issued on June  19, 1995, is amended  as
follows:

p.48, l.4:  Change "note 24" to "note 20".

p.49, l.15:  Change "note 23" to "note 21".

p.87, l.18:  Change "occurred" to "did not occur".

p.91, l.4:     Change "the  plaintiff appeal"  to "the  plaintiffs
appeal".

p.91, n.34, 3rd line from bottom:  Change "n.18" to "n.16". 

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 93-2338

      COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, ET AL.,

                   Plaintiffs, Appellants,

                              v.

         NEW ENGLAND REINSURANCE CORPORATION, ET AL.,

                    Defendants, Appellees.

                                         

No. 93-2339

      COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, ET AL.,

                    Plaintiffs, Appellees,

                              v.

         NEW ENGLAND REINSURANCE CORPORATION, ET AL.,

                   Defendants, Appellants.
                                         

        APPEALS FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

       [Hon. Edward F. Harrington, U.S. District Judge]
                                                                   

                                         

                            Before

                    Torruella, Chief Judge,
                                                      

               Campbell, Senior Circuit Judge,
                                                         

                 and Carter, District Judge.*
                                                       

Robert S.  Frank,  Jr. with  whom  Cynthia  T. MacLean,  David  A.
                                                                              
Attisani, Choate,  Hall &  Stewart, David  S. Mortensen  and Tedeschi,
                                                                              
Grasso & Mortensen were on brief for defendants.
                          
Allan  B. Taylor,  with  whom  William Shields,  Kenneth W.  Ritt,
                                                                             
Matthew E. Winter, Mary Theresa Kaloupek and Day, Berry  & Howard were
                                                                         
on brief for plaintiffs.

                                         

                                         

                
                            

*Of the District of Maine, sitting by designation.

          CAMPBELL, Senior Circuit Judge.   This is an appeal
                                                    

from  a final  judgment of  the district  court in  an action

brought  by  a  number  of  foreign  reinsurance  syndicates,

companies  and pools  against a domestic  reinsurance company

and related parties.  At  issue are reinsurance contracts (or

"treaties,"  as  they  are  known)  under  which  plaintiffs,

Compagnie De Reassurance  D'Ile de France, et al.,1 agreed to

reinsure portions  of risks selected, and  also reinsured, by

defendant New  England  Reinsurance Corp.  ("NERCO").   After

sustaining heavy losses under these Treaties, plaintiffs sued

defendants  NERCO,  First  State  Insurance  Company  ("First

State"), and Cameron and Colby Co., Inc. ("Cameron & Colby"),

alleging  that  they  had  been  induced  to  enter  into the

reinsurance treaties by fraud, and further claiming breach of

contract,  violations  of Mass.  Gen. L.  ch.  93A,    2, and

violations   of  the   Racketeer   Influenced   and   Corrupt

Organizations  Act   ("RICO"),   18  U.S.C.        1961-1968.

Defendants  counterclaimed, alleging  breach of  contract and

violations of Mass. Gen. L. ch. 93A,   2.  Following a 30-day

                    
                                

1.  The  plaintiffs  are  listed  in  the   district  court's
opinion.  See Compagnie de Reassurance D'Ile de France v. New
                                                                         
England  Reinsurance Corp.,  825 F.  Supp. 370,  373 n.2  (D.
                                      
Mass. 1993).   Plaintiffs Pohjola Insurance  Company Ltd. and
Pohjola  Insurance  Company (UK)  Limited  were dismissed  on
motion of  the defendants, with the consent of the plaintiffs
during the  trial, and the  parties entered a  Stipulation of
Dismissal dated  May 5,  1995, whereby plaintiff  De Centrale
Herzverzekering N.V. dismissed its appeal in No. 93-2338, and
the defendants dismissed their  appeal in No. 93-2339 against
De Centrale only, leaving 31 plaintiffs remaining.

                             -4-

bench trial, the district  court found for the  plaintiffs on

all but the RICO claims.  The court ordered rescission of the

challenged reinsurance Treaties and ordered defendants to pay

plaintiffs $38,118,940.07, representing  all sums  plaintiffs

had previously paid out on losses incurred under the Treaties

with credit for premiums  received, plus prejudgment interest

at 12 percent.  Defendants estimate that the net cost to them

of the court's decision, adding together the court's judgment

and  the sums plaintiffs have been excused from paying out as

reinsurers of various losses, is approximately $106 million.

          Defendants have  appealed  from the  judgments  for

plaintiffs on the fraud,  contract and Mass. Gen. L.  ch. 93A

claims.   Plaintiffs  have cross-appealed  from the  district

court's dismissal of their  RICO claim.  For the  reasons set

forth  below, we  sustain the  district court's  findings and

rulings on  certain matters; reverse others  as being clearly

erroneous  or legally  incorrect;  and identify  still others

that require  the district court to make findings and rulings

now  absent.   We,  therefore,  vacate  the district  court's

judgments  and  remand  for  further  proceedings  consistent

herewith.  Our specific  dispositions are summarized on pages

98-100 of this opinion.

I.        Background
                      Background

          The following is an  overview.  More specific facts

will  be related as needed  in our discussion  of the various

                             -5-

issues.

          The defendants are all subsidiaries of the Hartford

Group  of  Insurance  Companies  ("the  Hartford").2    First

State, based in Boston, Massachusetts, was a primary insurer.

NERCO was  a Boston-based reinsurer.   Cameron &  Colby, also

based    in    Boston,   provided    management,   marketing,

underwriting,  and other  services  to both  First State  and

NERCO.   Neither First State  nor NERCO had  employees of its

own; their businesses were carried on by employees of Cameron

& Colby.  Graham  Watson, Inc.,3 not a party,  was created in

1979 as  an unincorporated  division of Cameron  & Colby;  it

became  the  latter's  wholly owned  subsidiary  in mid-1980.

Graham   Watson's  role   was   to   provide  marketing   and

underwriting   services   in  the   facultative4  reinsurance

venture that is the subject of this litigation.

                    
                                

2.  The  relationship  between  these  defendants  and  their
corporate parents, the Hartford and  ITT, is described in the
district court's opinion, 825  F. Supp. at 373.   Neither the
Hartford nor ITT is a party to this case.

3.  This entity is  variously referred to  as "Graham-Watson"
and "Graham Watson" in the documents contained in the record.
Like  the district court, we will  use the unhyphenated form,
unless quoting directly a source using the hyphenated form. 

4.  Facultative reinsurance is one of  the two major types of
reinsurance, the  other being  treaty reinsurance.   From the
Latin word for  "ability" or "power,"  "facultative," broadly
speaking,  connotes  the option  to  reinsure,  or not,  each
particular risk, as contrasted  with a binding arrangement to
reinsure all risks of a particular sort.  See infra.  A major
                                                               
issue in  this case is  whether the  reinsurance provided  by
defendants  was  "facultative,"  as  promised  in  the   SANS
Treaties.

                             -6-

          The  underlying casualty and property risks germane

to  this case were located in North America.  Individuals and

entities  wishing  to  insure  against  these  risks procured

policies of insurance from primary insurers.  The latter then

purchased  reinsurance  from  NERCO  in  order  to  indemnify

themselves in whole or in part against losses sustained under

the primary policies they had issued.

          Not  wanting to keep  all the exposure  that it had

assumed as a reinsurer, NERCO itself    often acting with and

through  Graham Watson     sought  reinsurance on  the London

insurance  market, resulting  in the arrangements  with which

this lawsuit is concerned.  Under these reinsuring agreements

-- the  so-called System and Non-System  ("SANS") Treaties --

many  syndicates  at Lloyd's  of  London  and other  overseas

reinsurance entities (some of whom are the plaintiffs in this

case) agreed to  provide continuing reinsurance to NERCO on a

portion of each risk it reinsured.   In industry terminology,

NERCO, having been "ceded" the risks by the primary insurers,

became    a    "retrocedent,"    the     plaintiffs    became

"retrocessionaires," and  the  agreements between  them  were

"retrocessional" treaties.   The plaintiff  retrocessionaires

agreed to indemnify NERCO  for a portion of any  losses NERCO

might sustain  in its  reinsurance of  primary insurers.   In

return,  NERCO  promised  to  acquire  ("produce"),  evaluate

("underwrite"),  and price  ("rate") the  risks and  to share

                             -7-

with plaintiff retrocessionaires, subject to its retention of

certain commissions, a portion of the premium it received.

          A.  Signing the Treaties
                          Signing the Treaties

          In 1979, NERCO retained a U.S. broker, G.L. Hodson,

to  assist it in arranging for this reinsurance on the London

market.   Towards this end, Graves Hewitt, the CEO of Cameron

& Colby, and  his associates drafted  and circulated in  late

1979 a  document  known as  the  Placing Information.    This

document  stated that  Cameron  & Colby  had established  the

Graham Watson division after studying facultative reinsurance

operations in North America  and after receiving the approval

and support of the Hartford and ITT.5  The  stated purpose of

the division was:

          1.   To participate in  the property  and
               casualty   facultative   reinsurance
               business    which    is    currently
               dominated by the direct writers.

          2.   To rationalise [sic] the facultative
               placements of both the  Hartford and
               the  First  State not  only  from an
               administration  [sic] point  of view
               but    also     to    provide    the
               retrocessionaires with a broad cross
               section  of facultative  reinsurance
               emanating from these two companies.

According  to  the  Placing Information,  Graham  Watson  was

                    
                                

5.  Plaintiffs'   fraud   claims   rely    significantly   on
representations made  in the Placing  Information, especially
those pertaining to Graham Watson's intention to procure non-
brokered, "direct" business from "selected primary companies"
rather than brokers.  We attach  as an appendix a copy of the
Placing Information typically circulated to the plaintiffs.

                             -8-

charged  with  penetrating the  "non-brokered  .  . .  direct

professional  reinsurance   market,"  leaving  "[f]acultative

reinsurance emanating  from reinsurance intermediaries  . . .

[to] continue  to be written separately  through NERFAC," the

latter being an  existing in-house entity that  had, for some

time,  been  writing reinsurance  for  the  defendants.   The

Placing Information was circulated  to, among others, several

European  sub-brokers retained  by Hodson  to act  on NERCO's

behalf in seeking potential retrocessionaires.6

          In late 1979, Hewitt traveled to London accompanied

by  Thomas Hearn, a Hodson  employee.  Aided  by employees of

sub-broker Sedgwick  Payne, they approached Ralph Bailey, the

head underwriter  for plaintiff Terra Nova  Insurance Company

Limited, and described to  him the proposed reinsurance plan.

Sedgwick-Payne's  brokers  thereafter negotiated  with Bailey

the "slips" spelling  out the  terms of the  treaties.   With

Bailey agreeing to act as  "lead underwriter" for the  London

market companies,  the brokers  approached  Ron Kellet,  head

underwriter for  plaintiff B.P.D. Kellet &  Others, a Lloyd's

syndicate, with the  request that he act as  lead underwriter

                    
                                

6.  These included Sedgwick Payne, North American Reinsurance
Brokers Ltd.; Anglo-Swiss  Reinsurance Brokers, Ltd.;  Carter
Brito E Cunha Ltd.; Fielding & Partners; and Jardine Thompson
Graham  Ltd.   None of  the sub-brokers  are parties  to this
suit.

                             -9-

on  behalf of all other Lloyd's syndicates.7  After the leads

had   stamped  and  initialed   the  slips,   indicating  the

proportion of the total  risk they were bound to  accept, the

slips   were  separately   presented  for  approval   to  the

underwriters  for  each  of  the plaintiffs,8  each  of  whom

indicated his or her acceptance of a  portion of the risks by

                    
                                

7.  A  lead   underwriter   is  initially   responsible   for
negotiating the  terms of  reinsurance contracts such  as the
SANS Treaties.  The lead underwriter normally commits  his or
her firm or syndicate to a level of participation in a treaty
that  is somewhat  higher  than that  of other  participating
reinsurers, who  are referred  to as the  "following market."
Members  of the  following  market rely  on the  underwriting
skill  and judgment of the  lead as an  important factor when
deciding whether  and by  how much  to  commit themselves  on
reinsurance   obligations.      Thus,   having   a  reputable
underwriter  as  lead can  have a  significant effect  on the
ability  to fully place a retrocessional  treaty.  There were
actually  two lead underwriters in this case:  Bailey for the
London  market   companies  and   Kellett  for  the   Lloyd's
syndicates.   See Edinburgh Assur.  Co. v. R.L.  Burns Corp.,
                                                                        
479  F.Supp.  138,  145  n.2 (C.D.  Cal.  1979)  ("The market
sometimes recognizes both a lead underwriter at Lloyd's and a
lead company underwriter."), aff'd in relevant part, 669 F.2d
                                                               
1259 (9th Cir. 1982).

8.  Not all  of the 31  plaintiffs participated  in all  four
years  of  the   SANS  Treaties.    (28  of   the  plaintiffs
participated in  the 1980  SANS Treaties; 29  participated in
1981; 27 participated in 1982;  and 15 participated in 1983.)
However, the process of stamping and initialling the slips to
indicate  acceptance of a portion of the risk was repeated in
each of the following  three years (1981-83) with respect  to
each individual plaintiff.  We  also note that the plaintiffs
were not the only retrocessionaires participating in the SANS
Treaties;  in   all,  approximately  100   separate  entities
accepted portions  of  these risks  over  the four  years  in
question.

                             -10-

initialing the slip.9

          These  slips constituted, in  abbreviated form, the

contracts   between  the   cedent   NERCO  and   the  various

retrocessionaires.10      Briefly   summarized,   the   slips

provided  that  the  subject   matter  of  the  Treaties  was

"Business classified by the Reassured [NERCO] as Property and

Casualty   Facultative   Assumed   business    produced   and

underwritten by the Graham Watson division of Cameron & Colby

Co.,  Inc."  They also  stated that the  Lead Underwriter had

authority to require exclusion of certain types of risks, and

to agree to the final wording  of the formal contract.  NERCO

was  to retain a minimum of  $250,000 of each risk ceded, and

as  respects system  business (i.e.,  risks written  by First

State and  other Hartford entities,  infra), was not  to cede
                                                      

more than 50 percent of the original reinsurance limit of any

given risk to  the Treaties,  and was to  co-reinsure for  10

percent participation  on  each such  risk.   The slips  also

specified   the  commission   structure  and   various  other

conditions of the  Treaties.  The  slips did not  incorporate

the Placing Information as such.

          Each   underwriter   subsequently   signed   Treaty

                    
                                

9.  For a  detailed discussion  of the business  practices of
the  London insurance  market, see  Edinburgh Assur.,  479 F.
                                                                
Supp. at 144-46. 

10.  We  place in the appendix portions of one of the typical
slips utilized here.

                             -11-

Wordings,   formal  contracts  containing  a  more  elaborate

statement  of the parties'  agreements.  These  were based on

the slips, and  the parties agreed that, in the  event of any

inconsistency,  the slips  would control.   The first  set of

SANS Treaties ran for the eleven month period from February 1

through December 31, 1980.   Thereafter, those plaintiffs who

desired  to   continue  for  another  year   indicated  their

willingness to  join by initialling new  slips and ultimately

executing new Treaty Wordings  for 1981.  Successive Treaties

were entered  into  for  1982 and  for  1983.   Some  of  the

plaintiffs  entered into Treaties for each of the four years;

others were parties  to the  Treaties for only  one, two,  or

three   of  those   years.    The   Treaties  were   open  to

renegotiation each year, and  certain changes, e.g., relating

to commission structure and the like, were in fact made.

          For each Treaty year  there were actually two slips

prepared,  one for  property  business and  one for  casualty

business.   The business  covered by  each  slip was  further

divided  into  "system business"  and  "non-system business."

"System business"  denoted risks written by  member companies

of the Hartford, and included,  among others, First State and

the Hartford itself.  "Non-system business" referred to risks

written  by any  other primary  insurer.   As a  condition of

participation,   although  not   included   in  the   written

contracts, Bailey  insisted that  no  non-system business  be

                             -12-

ceded to the SANS Treaties for the first year.   He testified

in  his deposition  that this  was because  he felt  that the

system  business  was  "the  steadier,  better  part  of  the

portfolio."

          B.  Performance of the Treaties
                          Performance of the Treaties

          Once the  Treaties were  fully placed for  the 1980

treaty  year,  NERCO  began  retroceding  to  the  plaintiffs

portions  of the  risks it  was reinsuring.   Central  to the

plaintiffs'  present complaint, and  to the  district court's

finding of liability,  are the source  and nature of  NERCO's

business  as ceded  to  them.   In the  first  year, over  95

percent  of  the  business  so  ceded  was  system  business.

However,  few, if  any,  of  the  risks reinsured  were  from

Hartford companies  other than First  State.  In  the ensuing

three years,  the proportion  of system business  declined in

favor  of non-system business to less than 50 percent.  There

was evidence  that defendants had hoped  that system business

would  grow and  that NERCO  and its  retrocessionaires would

obtain  more  reinsurance  business directly  from  the other

Hartford  companies, in  addition  to First  State, but  that

these hopes were not realized.

          The proportion of non-system business rose steadily

after  the first year, but  the non-system business  was of a

kind which plaintiffs contend,  and the district court found,

was  different   from  that   represented   in  the   Placing

                             -13-

Information.  The court  construed the Placing Information as

representing  "that Graham Watson  would produce 'non-system'

reinsurance   business   directly   from  primary   insurance

companies without the use of intermediaries."  In support  of

the court's construction, plaintiffs point to representations

in the Placing Information that Graham Watson did  not intend

to seek  reinsurance  "on  a wholesale  basis  from  all  and

sundry" but  rather to  develop a close  working relationship

"with  selected primary companies."   The Placing Information

stated  that non-brokered business "placed significantly with

the  direct  professional  reinsurance market"  characterized

over  80 percent  of United  States  facultative reinsurance.

The Placing  Information also  stated that Graham  Watson was

"charged   with  the   responsibility  of   penetrating  this

business."  Notwithstanding these announced intentions in the

Placing Information, most  of defendants' growing  non-system

business  after the end of  1980 was, in  fact, obtained from

intermediaries    to wit, brokers and Managing General Agents

("MGAs").  MGAs serve as agents of primary insurance carriers

with authority  to underwrite  and place certain  business on

the insurers'  behalf.   Defendants received the  majority of

their non-system business, portions  of which were then ceded

to the  plaintiffs under  the SANS  Treaties, from  Baccala &

Shoop Insurance  Services, an  MGA representing a  variety of

primary insurance companies.   Baccala & Shoop worked closely

                             -14-

with the broker, G.L. Hodson; in fact, they were owned by the

same entity.

          1.  Semi-Automatic and Automatic Facilities
                          Semi-Automatic and Automatic Facilities

          Another key issue  in the present  litigation stems

from  the fact that, during the annual periods covered by the

Treaties,  almost   all  of  the  non-system   business  that

defendants  produced, and  shared  with  the plaintiffs,  was

underwritten   using   what   are    called   "semi-automatic

facilities."   (A  "facility"  is an  agreement setting  out,

among other things,  the rules under  which a reinsurer  will

reinsure  risks ceded by the other party.)  Defendants insist

that semi-automatic facilities were perfectly consistent with

the  representations  in  the  slips and  Treaties  that  the

reinsurance  to be  ceded  to plaintiffs  would be  "business

classified by the Reassured  [NERCO] as Property and Casualty

Facultative   Assumed   business."     (Emphasis   supplied.)
                       

Plaintiffs   sharply  dispute  this.     Calling  facultative

underwriting the  "fundamental  material  term  in  the  SANS

Treaties," the district court agreed with plaintiffs that the

term "facultative" included only reinsurance that a reinsurer

underwrites  and negotiates  with  the primary  insurer on  a

risk-by-risk individual certificate basis in advance, i.e., a

certificate of reinsurance is issued  for each risk after the

reinsurer has first looked  into and approved reinsuring that

particular risk.

                             -15-

          Under  the  semi-automatic  method that  defendants

mostly used  in  underwriting non-system  risks,  defendants'

underwriters  did not evaluate risks one at a time in advance

of  the issuance  of a  policy of  reinsurance on  each risk.

Instead,    in    contracts   called    "Master   Facultative

Certificates" ("MFCs"), NERCO agreed  with an MGA, broker, or

primary   insurer  that   the  latter   entity  could   issue

reinsurance upon  risks of described types,  and upon certain

conditions and  with  certain limits,  prior  to  defendants'

underwriters' scrutiny and approval  of the risk.   After the
                                                                     

reinsurance  attached to  each  risk, however,  the agent  or

ceding company would send to Graham Watson a "risk bordereau"

    a  document  identifying   and  providing  a  summary  of

information as to that, and any other, risks reinsured within

the  reporting period.  Graham Watson then had a brief period

after receipt of  the bordereau, for example 72 hours, within

which to cancel the reinsurance on a particular risk if it so

desired, cancellation  to  take  effect  within  a  specified

period, say, 14 days.

          Defendants  contend,  and  presented   evidence  at

trial,   that  the   semi-automatic   facility  is   commonly

classified  in the  industry today as  a form  of facultative

reinsurance.     They  concede  that,  in   an  earlier  era,

"facultative"  was   a  term  applied   only  to  reinsurance

individually  underwritten on a risk-by-risk basis in advance

                             -16-

of binding.  But  while accepting that the  reinsurer's right

to  reject  individual risks  remains  a  general feature  of

facultative reinsurance, defendants contend that this feature

is  adequately   preserved  in   the   more  economical   and

streamlined semi-automatic facility.11

          Defendants  also  used,  in   a  few  instances,  a

variation known as  an "automatic facility."  Under this type

of  facility,  rather  than  having the  right  to  cancel an

individual risk,  the reinsurer has  the right to  cancel the

entire facility on very short notice.  Even without the right

to cancel a  particular risk, defendants argue that  this was

"facultative,"  since  the  reinsured would,  as  a practical

matter,  agree to  cancel individual  risks rather  than face

cancellation of the entire facility.  Moreover, the reinsured

retained  the freedom  to cede  or not  to cede  a particular

risk,  which   is  not   the  case  in   treaty  reinsurance.

Automatics comprised  only a small portion  of the non-system

business,  most  of   which  was  underwritten   using  semi-

                    
                                

11.  Because of  the cedent's right of  cancellation, and the
reinsured's right  not to cede, defendants  and their experts
contend  that  the  semi-automatic  facility  is  a  form  of
facultative   reinsurance,  and  is  not  forbidden  "treaty"
reinsurance.     The  SANS  Treaties   contained  an  express
exclusion  for  "assumed  treaty"   business.    In  "treaty"
reinsurance, the reinsurance arises solely as the consequence
of the terms of  a prior general contract,  with no right  on
the reinsurer's part  to reject a particular  risk that meets
the  terms  of the  contract, and  without  any right  on the
reinsured's part to decline to cede a particular risk, always
assuming that the risk  in question conforms to the  terms of
the prior contract.  

                             -17-

automatics.

          2.  The First State Business
                          The First State Business

          With regard  to system business  (which was  almost

exclusively with  First State), the defendants did  not use a

risk  bordereau,  nor  did  they ever  enter  into  a  formal

contractual  arrangement  spelling   out  First  State's  and

NERCO's relationship in respect to the latter's reinsuring of

risks later  assigned  under the  SANS Treaties.   There  was

evidence, however, indicating how matters worked in practice.

In  practice,  First  State's  underwriters  had  the   power

initially  to commit NERCO and the SANS Treaty signatories to

the reinsuring of individual risks primarily insured by First

State.   The reinsurance was evidenced by a layoff sheet that

First State  prepared; each  layoff sheet identified  a First

State  risk that  NERCO  and the  Treaty signatories  were to

reinsure, and  provided a brief summary  of information about

that risk.  A  packet containing many of these  layoff sheets

was periodically  provided by  First State to  Graham Watson,

whose underwriter could  study the risks  and would have  the

right to cancel the reinsurance at will.

          Defendants   contend   that    this   method    was

"facultative" because each risk was individually evaluated in

due  course  by a  Graham  Watson  underwriter based  on  the

information provided on the layoff sheets    and by follow-up

phone  and face-to-face  inquiries, as  well as  by  means of

                             -18-

microfiches   which   reproduced    First   State's    entire

underwriting file for a risk, and were available upon request

    and it was understood that the reinsurance was subject to

cancellation at will by  Graham Watson.  They point  out that

because  First  State's  and Graham  Watson's  employees were

under  the same roof and  answerable to the  same bosses, the

latter's  underwriters could informally influence First State

not  to cede  business the  latter did  not wish,  as further

evidence  of their facultative  control.  Notwithstanding the

absence of a written  understanding between Graham Watson and

First  State, the  district  court found,  after hearing  the

evidence,  that,  "Graham   Watson  underwrote  all  "'system

business' .  . .  by the 'automatic'  and/or 'semi-automatic'

method  of  underwriting."    Since  practically  all  system

business  was with  First  State, this  finding grouped  that

underwriting with the  explicit semi-automatic and  automatic

facilities used in non-system business.

          3.  Further Performance
                          Further Performance

          At trial,  plaintiffs made  much of the  absence of

proof  of  particular  occasions  when  defendants  had  ever

actually  rejected a  risk listed  in a  bordereau or  layoff

sheet.    Plaintiffs  also  sharply  questioned  whether  the

information   in  the  bordereaux   and  layoff   sheets  was

sufficient to allow for adequate underwriting (evaluation) of

individual  risks.  Defendants responded by emphasizing that,

                             -19-

whether  or  not  used, the  right  to  reject  at all  times

existed, and  by pointing  to evidence that  its underwriters

adequately reviewed the risks and had other means    personal

inquiries,  telephone calls, inspection of First State files,

and so on     to make inquiry in doubtful cases.  Defendants'

evidence also indicated that Graham Watson conducted periodic

audits of the  underwriting practices of  MGAs and others  in

order to  assess  compliance with  the terms  of the  various

facilities.    The  district  court found  no  evidence  that

defendants  had  rejected any  risks  and  found that  Graham

Watson's underwriting of individual risks was inadequate.

          In  any  case,  while defendants  wrote  some small

percentage of  reinsurance under  the SANS Treaties  that was

facultative in the traditional  sense of advance risk-by-risk

underwriting, most of the reinsurance produced under the SANS

Treaties was  underwritten either  under some variety  of the

semi-automatic facility or, in the case of First State system

business, under  the informal in-house  procedures previously

described.  And, as  mentioned above, over the four  years of

the SANS Treaties, one MGA, Baccala & Shoop, furnished almost

all  of the  non-system business  to defendants.   Non-system

business was  found by the court  to constitute approximately

one-half of the treaty business during the four year period.

          The agreement with Ralph Bailey to avoid non-system

business for the  first year was not to the  liking of Graham

                             -20-

Watson, whose employees  felt that non-system business  would

be a steadier source of income for the Treaties.  Bailey also

made  known his dislike of  MGAs and his  reluctance to allow

MGA  business to  be  ceded to  the  SANS Treaties.    Bailey

testified  that, because  MGAs  did not  themselves bear  any

risk,   they  did   not  underwrite   as  carefully   as  did

underwriters on  the payrolls  of the primary  companies, and

hence the  business  produced through  them  was of  a  lower

quality.12    Again, this  was not  to  the liking  of Graham

Watson;  one internal  memorandum,  dated December  11, 1980,

stated that "Ralph Bailey has an aversion to MGAs and he will

have to be  approached rather delicately because  a good deal

of  the business going into this facility will be on business

which is designed  to provide a real flow of  business from a

single  source."  This memorandum also  noted that Tom Hearn,

of Hodson, would  travel to  London on December  15, 1980  to

attempt to  overcome this  aversion.  Responding  to repeated

requests from Graham Watson  employees, Bailey agreed at some

time  during  the first  year  to  begin allowing  non-system

                    
                                

12.  Conflicting points  of view were expressed  by insurance
experts  at trial  about  the relative  effectiveness of  MGA
underwriting, as filtered through  semi-automatic facilities,
and   risk-by-risk  underwriting   on   a   "direct"   basis.
Defendants offered evidence  that the losses sustained  under
the  SANS  Treaties were  less  than  those suffered  by  the
reinsurance  industry  as a  whole  during  the same  period.
Plaintiffs  did  not  attempt  to disprove  this  but  rather
insisted  that  the defendants  never  provided  the type  of
reinsurance business they had promised.

                             -21-

business to be  ceded to  the Treaties.   While he  expressly

agreed  to the  cession of  certain  MGA business  during the

first year (from  an MGA known as the London  Agency), he did

so only with great  reluctance.  However, he did  not request

or  insert  an exclusion  for MGA  business  in the  slips or

Treaty Wordings for subsequent years, as he could  have done.

No such express exclusion was ever inserted.

          4.  Renewal of the Treaties
                          Renewal of the Treaties

          The SANS Treaties were continuous contracts subject

to  cancellation  "upon  120  days prior  written  notice  at

December 31,  1980 or  any subsequent December  31st."   This

allowed  any desired adjustments to  be made in  the terms of

the Treaties  on a  yearly basis.   In practice,  all of  the

retrocessionaires   cancelled   during  the   120-day  period

preceding December 31, 1980 and then initialled new slips for

the next calendar year.   In order to induce  renewal, Graham

Watson, again  through Hodson and  the European  sub-brokers,

disseminated a  document referred to as  the 1981 Anniversary

Information.    In addition  to listing  losses in  excess of

$50,000 reported through September  30, 1980, and providing a

summary  of  the business  ceded  thus  far, the  Anniversary

Information included the following statements:

          To   date,   the  preponderance   of  the
          business  has  been  assumed  from  First
          State Insurance Company  and written on a
          pro  rata  basis.    Non-System  business
          represents a  relatively small proportion
          of the total and what has been written is

                             -22-

          limited to Casualty business on an excess
          of loss basis  emanating from Baccala and
          Shoop Insurance Services.

          Because of the competitive climate in the
          United  States, Non-System  business will
          develop   more  slowly   than  originally
          anticipated.    It  continues to  be  the
          posture  of  Graham-Watson  not  to  seek
          business  on a wholesale basis but rather
          to  develop  close  working  relationship
          [sic] with selected primary sources.

          On  March 23, 1981, a meeting was held in Boston to

discuss the performance of the SANS Treaties.  In  attendance

were Ralph Bailey and several  employees of Hodson and Graham

Watson.  One major topic of conversation was the inclusion of

MGA business.   Bailey  asked the Graham  Watson underwriters

for  their opinion of  Baccala & Shoop,  and was told  by Bob

Wright, the  property underwriter,  that Wright knew  most of

Baccala & Shoop's home office people and was comfortable with

them.  Later in  the meeting, however, Bailey stated  that he

would not consider any new MGA business for the facility.  He

did  not, however,  make  this a  contractual requirement  by

inserting  an exclusion for MGA  business in the  slip at the

next renewal.

          At the close of the second year, a 1982 Anniversary

Information was disseminated, which  again provided a list of

losses and a  summary of  the business.   This document  also

included  figures  as  to  overall  loss  experience  through

September 30,  1981, which  disclosed that the  SANS Treaties

were  losing  money.   Indeed, the  loss  ratio for  the 1980

                             -23-

Treaties  was an  alarming  248.65 percent.13   In  addition,

the  1982  Anniversary  Information  included  the  following

statements:

          The  rating  basis of  these  treaties is
          being  amended  with   effect  from   1st
          January 1982 to  more accurately  reflect
          the  basis  used by  Graham-Watson.   All
          business other than that assumed from the
          First  State which is  a "system" company
          is being written on  a net rated basis in
          that Graham-Watson is quoting their price
          and if a ceding commission is required by
          the  original company, this is then added
          to the premium required  by Graham-Watson
          . . . .
          The  current sources of business is [sic]
          as follows :-
          FIRST STATE INS. CO.
          TWIN CITY per  Baccala      and     Shoop
                         Insurance Services
          ST. PAUL FIRE & MARINE
          NORTHBROOK
          CRUM & FORSTER
          CNA
          ROYAL INS. CO.
          CHUBB AND SON
          AETNA CASUALTY & SURETY

Plaintiffs point  out defendants'  failure to  mention, other

than in  the case of  Twin City, that  certain of  the listed

primaryinsurersactedthroughBaccala &Shooporotherintermediary.

          It appears  that no formal  anniversary information

was  prepared for 1983, the  last year of  the SANS Treaties,

although  letters   were   sent  to   the   retrocessionaires

                    
                                

13.  Loss  ratio  is  the  ratio of  net  earned  premium  to
incurred  losses.    A  loss  ratio under  100%  indicates  a
profitable treaty;  a loss ratio greater  than 100% indicates
that more money is being paid to satisfy claims than is being
made in the form of premiums.

                             -24-

containing a list of  losses, a summary of the  business, and

notification of various  changes that had been made  over the

past year, none  of which  are material here.   However,  the

retrocessionaires   were  told   that   the   treaties   were

"continuing for 1983 basically as before."

          Following  the placing  of the  SANS Treaties,  the

plaintiffs at first accepted their shares of the premiums and

paid their shares of  corresponding losses incurred by NERCO.

The  losses were  considerable, as  they were  throughout the

insurance industry at this  time.  Beginning as early  as the

fourth quarter  of 1982,  however, certain of  the plaintiffs

ceased  paying losses.14   There  was evidence  that some  of

the plaintiffs (in addition to Terra Nova, through Bailey, as

related  above) began to inquire  as early as  1982 about the

use  of MGAs  to  obtain business  (rather  than through  the

formation of direct relationships with primary insurers), and

about the underwriting methods used by the defendants.

          C.  The Present Lawsuit  
                          The Present Lawsuit

          In 1985,  some of  the plaintiffs retained  counsel

                    
                                

14.  The  district court  made no  findings as  to  when each
individual plaintiff first refused to make payments on losses
incurred.   The plaintiffs  introduced evidence  which showed
the  last quarter in which  each plaintiff made  a payment to
the Defendants.   The  earliest was Kansa  Reinsurance, which
made  its last  payment in  the fourth  quarter of  1982; the
latest were nine plaintiffs including Uni  Storebrand, Sampo,
and the  seven companies  bound through  Aurora Underwriters,
all  of whom made their last payments some time in the fourth
quarter of 1986.

                             -25-

and  sought to  conduct a  preliminary inspection  of NERCO's

books pursuant to a provision in the Treaty Wordings allowing

a  right  of inspection  "at  all  reasonable times  for  the

purpose  of obtaining information concerning this contract or

the  subject matter  thereof."   NERCO  allowed  a seven  day

preliminary inspection  in the fall  of 1985,  but a  dispute

then  arose between  the  parties  concerning the  conditions

under which any further inspection was to be conducted.

          Evidently  dissatisfied with  the  results of  this

inspection, and  concerned about  the growing loss  ratios of

the SANS  Treaties, a  group of sixteen  plaintiffs (of  whom

seven are  no longer  parties) commenced this  action against

NERCO  on January  6, 1987.   They  alleged  that they  had a

contractual  right  under  the treaties  to  inspect  NERCO's

records, and  that although  they had previously  conducted a

seven  day inspection, a  further, more exhaustive evaluation

was  needed.    They  sought   an  order  compelling  a   new

inspection.   On February  13, 1987,  the  parties entered  a

voluntary stipulation allowing,  and establishing  procedures

for, a further inspection to be conducted by  Roy T. Ward and

four  of his employees.   On February 27,  1987, the district

court entered  an order  allowing the inspection  to continue

pursuant to that stipulation.

          Meanwhile,  in   late  1986  a   second  group   of

reinsurers that had  continued to pay  losses to NERCO  while

                             -26-

the  parties  discussed the  possibility  of  a commutation15

retained a reinsurance inspection firm, Palange & Associates,

to inspect  NERCO's books  and records.   The  inspection was

conducted in Boston in 1987.  Again, disputes arose as to the

scope  and  methods of  this  inspection;  however, no  court

action  was  required  to  resolve these  disputes,  and  Mr.

Palange completed his inspection in the spring of 1988.

          Following these inspections, on July  12, 1988, the

original  plaintiffs,  now joined  by  the  remainder of  the

present plaintiffs, moved to amend their  complaint.  The new

complaint omitted the substantive allegations of the original

complaint,  and deleted  the  plaintiffs'  request  that  the

treaties be enforced.   Instead, the plaintiffs asserted that

the  treaties  had  been  induced  by  fraud  and  should  be

rescinded.  They also asserted claims for breach of contract,

violation of Mass.  Gen. L. ch. 93A,    2, and  the Racketeer

Influenced and Corrupt Organizations Act ("RICO"), 18  U.S.C.

   1961-1968.  Denying these allegations, defendants asserted

the statute  of limitations  as a defense  and counterclaimed

for recovery  under the  challenged treaties, and  for treble

damages, costs  and attorneys  fees under  Mass. Gen.  L. ch.

93A,   2.

                    
                                

15.  A commutation  is a method of  terminating a reinsurer's
obligation  to pay  future claims  in return  for a  lump sum
payment.    It does  not  necessarily  involve  any claim  or
admission of wrongdoing by the reinsured.

                             -27-

          Prior  to  trial the  defendants moved  for summary

judgment on the statute of limitations issue, as well as on a

variety of  other grounds not  important here.   The district

court held a hearing on the matter on January 15, 1992.  In a

written  order  dated  January  16, 1992,  the  court  denied

summary judgment  on the statute of  limitations ground, with

no explanation.

          A  jury-waived trial began  on April 5,  1993.  The

statute of  limitations was raised  again during trial.   The

court  delayed ruling until it could "find out what the facts

were."  On the  twenty-second day of trial, the  judge stated

simply that "[i]t seems that there is no problem with Statute

of Limitations."   However,  the court appeared  to entertain

the issue again  two days later, accepting  a deposition into

evidence  after  defendants argued  it  was  relevant to  the

statute of limitations.

          The  trial  concluded  on  May 19,  1993,  and  the

district court  entered a  memorandum and  order  on June  7,

1993.  See 825 F. Supp. 370 (D.  Mass. 1993).  The court held
                      

that  the defendants had induced the plaintiffs to enter into

the treaties  by means of fraudulent  misrepresentations, had

breached their contracts with  plaintiffs, and had engaged in

unfair and  deceptive trade  practices in violation  of Mass.

Gen. L.  ch. 93A.   The RICO count  was rejected.   The court

                             -28-

made  no  mention  of  defendants'   statute  of  limitations

defenses.16

          By  way  of  relief,  the  district  court  ordered

rescission   of  the  challenged  reinsurance  contracts  and

ordered defendants to repay to plaintiffs all sums plaintiffs

had  previously  paid  out  on losses  incurred  under  those

contracts with  credit for  premiums paid to  the plaintiffs,

plus  prejudgment  interest  at  12 percent.    Judgment  was

entered for the plaintiffs in June 30, 1993  in the amount of

$37,501,701.12   plus   postjudgment   interest  and   costs.

Following  several  motions to  amend  this  judgment, a  new

judgment was entered on  September 21, 1993 in the  amount of

$38,118,940.07,  which   listed  the   amount  due   to  each

                    
                                

16.  The district  court also made no  specific resolution in
its  judgment  of  defendants'  counterclaims.    It  can  be
implied, however,  as defendants  state in their  brief, that
the court  dismissed the  counterclaims "sub silentio."   The
                                                                 
counterclaims sought  to  hold plaintiffs  liable  for  their
unperformed reinsurance obligations imposed by  the treaties.
While it would  have been  better practice for  the court  to
have denied  the counterclaims expressly, its intent to do so
is apparent from its rescision of the treaties as having been
induced  by  defendants' fraud  and  breached  by defendants'
actions.  We have held, in parallel circumstances,  that such
elliptical judgments will be  deemed to adjudicate all claims
for Rule 54(b) purposes notwithstanding their failure to deal
specifically with  the counterclaims in question.   Joseph E.
                                                                         
Bennett Co. v. Trio Indus., Inc., 306 F.2d 546, 548 (1st Cir.
                                            
1962); see Fed. R. Civ.  P. 54(b); 28 U.S.C.   1291.   By the
                      
same token, we hold  that defendants, having acted reasonably
by focussing their appeal on the district court's findings of
liability, did not  forfeit the  right to  seek relief  under
their  counterclaims  by  not expressly  appealing  from  the
district    court's    unspecified    dismissal   of    those
counterclaims.

                             -29-

individual plaintiff, as  opposed to the  lump sum stated  in

the  first judgment.   The defendants' filed  their notice of

appeal  from  the fraud,  contract,  and  ch. 93A  claims  on

October  19,  1993; the  plaintiffs'  filed  their notice  of

appeal from  the adverse  RICO finding  on November  2, 1993.

Motions relating  to the plaintiffs' requests  for attorney's

fees and costs are still pending in the district court.

          D.  The District Court's Findings
                          The District Court's Findings

          In its  memorandum and order  of June 7,  1993, the

district  court  found  that  the defendants  made,  and  the

plaintiffs  relied upon,  "four material  representations" to

secure the  plaintiffs' participation  in the SANS  Treaties.

These were:

          1.   That Graham Watson would produce and
          underwrite    property    and    casualty
          facultative     reinsurance.         This
                                 
          representation mean[t] that Graham Watson
          would   underwrite   reinsurance  on   an
          individual,   risk-by-risk,   certificate
                                
          basis.
          2.   That  Graham  Watson  would  produce
          such reinsurance directly from system and
                                               
          non-system original  insurers without the
          use   of   any   intermediaries.     This
          representation mean[t] that Graham Watson
          would  be a direct  writer of reinsurance
          from   the    original   insurer,   which
          reinsurance   cessions   would   not   be
          brokered.
          3.   That  the Hartford  Companies, along
          with  First State,  would be  the "system
          business"   original   insurers.     This
          representation mean[t]  that the Hartford
          Insurance  Group would  be the  source of
          "system   business."       The   Hartford
          Insurance Group  is made  up  of the  so-
          called   Hartford  Companies   and  First
                                                               

                             -30-

          State,   an   excess  and   surplus  line
                           
          carrier.
          4.   That   Graham   Watson  would   seek
          facultative  reinsurance  business   from
          selected  primary companies,  rather than
                                       
          on    a    wholesale    basis.       This
          representation mean[t] that Graham Watson
          would  assume  reinsurance from  selected
          insurance   companies,  not   reinsurance
          companies  or  Managing  General  Agents,
          that  is,   from  risk-bearing  insurance
          entities.

825  F. Supp. at 376-77 (emphasis in original).  The district

court  found that  although  business had  been assumed  from

several  of the  Hartford Companies,  including First  State,

Hartford  Specialty Company,  Nutmeg  Insurance Company,  and

Twin City Insurance  Company, all of  this business with  the

exception of the First State business had  been classified as

non-system business.   The court  listed, as sources  of non-

system business, a number of primary insurance companies, but

also  a number  of brokers  and MGAs,  and found  that "[t]he

majority of  'non-system business' emanated from  Baccala and

Shoop,  a Managing  General Agent,  through the  intermediary

G.L.  Hodson."   Id.   After a  further discussion  of Graham
                                

Watson's underwriting practices, the court stated:

               Upon a review  of the evidence,  the
          Court  finds that  Graham Watson  did not
          facultatively   underwrite,    that   is,
          underwrite   on    an   individual   risk
          certificate basis as represented,  any of
          the "system business"  nor virtually  any
          of  the   "non-system  business";  Graham
          Watson  underwrote all  "system business"
          and  virtually all  "non-system business"
          by   the    "automatic"   and/or   "semi-
          automatic" method of underwriting.

                             -31-

               The Court also  finds, on the  basis
          of the evidence, that  most of the  "non-
          system   business"  emanated   from  MGAs
          through  the  use  of intermediaries  and
          from  intermediaries themselves,  and was
          not  produced  from primary  risk-bearing
          insurance  entities  directly.   Although
          the plaintiff reinsurers were  aware that
          Baccala and Shoop, an  MGA, had ceded  to
          the  SANS   Treaties  approximately  five
          percent of the  total business during the
          first   year,   1980,  they   were  never
          apprised that, during  the ensuing  three
          years, Baccala  and Shoop would  cede the
          majority  of  "non-system  business"  and
          that other MGAs and  intermediaries would
          cede,  in  conjunction  with Baccala  and
          Shoop, most of the  "non-system business"
          to  the  SANS   Treaties.     "Non-system
          business" constituted, over the course of
          the SANS Treaties, approximately one-half
          of   the  total  business  ceded  to  the
          Treaties.

825 F. Supp. at 379 (emphasis in original).

          With respect  to the plaintiffs' fraud  claims, the

district court stated that the plaintiffs understood that the

term  "facultative," as used in  the SANS Treaties, was being

used  in   its  "standard  and   traditional  sense,  namely,

underwriting on a risk-by-risk  certificate basis."  It found

that NERCO was aware of this understanding on the plaintiffs'

part, "and was well aware that it, itself, was secretly using

the  term in  a special  sense without  ever disclosing  such

special  meaning"  to  the  plaintiffs,  and  that  this  was

therefore a knowing  misrepresentation.  As to  the breach of

contract claims, the district court found that NERCO  did not

keep, and never  intended to keep, its contractual promise to

                             -32-

underwrite  risks obtained  directly  from  selected  primary

sources on an individual risk-by-risk certificate basis.

II.       Preliminary Matters
                      Preliminary Matters

          A.  Standard of Appellate Review
                          Standard of Appellate Review

          When  reviewing the  findings of  a  district court

sitting  without  a  jury,  "'the  court  of  appeals  cannot

undertake  to decide  factual  issues afresh.'"   Jackson  v.
                                                                     

Harvard  Univ., 900 F.2d  464, 466  (1st Cir.  1990) (quoting
                          

Reliance  Steel Prod. Co. v. National Fire Ins. Co., 880 F.2d
                                                               

575, 576 (1st Cir. 1989)), cert. denied, 498 U.S. 848 (1990).
                                                   

We  may set  aside findings  of fact  by the  district court,

whether  based  on  oral  or documentary  evidence,  only  if

"clearly erroneous," and with  due regard "to the opportunity

of the trial court to judge of the credibility of witnesses."

Fed. R. Civ. P. 52(a).  A finding is clearly  erroneous when,

"'although  there is  evidence to  support it,  the reviewing

court  on the entire evidence  is left with  the definite and

firm  conviction that  a mistake  has been committed.'"   See
                                                                         

Anderson v. City of  Bessemer City, 470 U.S. 564,  573 (1985)
                                              

(quoting  United States v. United States Gypsum Co., 333 U.S.
                                                               

364, 395 (1948)),  reh'g denied, 333 U.S.  869); accord Brown
                                                                         

Daltas & Assoc., Inc. v. General Accident Ins. Co. of Am., 48
                                                                     

F.3d 30, 36 (1st Cir. 1995).

          Review  of  legal  rulings  is,  however,  de novo.
                                                                        

"[I]f  the trial  court bases  its findings  upon  a mistaken

                             -33-

impression  of applicable  legal  principles,  the  reviewing

court  is  not  bound  by the  clearly  erroneous  standard."

Inwood Lab., Inc. v. Ives Lab.,  Inc., 456 U.S. 844, 855 n.15
                                                 

(1982)  (citing United  States v. Singer  Mfg. Co.,  374 U.S.
                                                              

174,  194 n.9  (1963));  accord Cumpiano  v. Banco  Santander
                                                                         

Puerto Rico, 902  F.2d 148, 153 (1st  Cir. 1990).  "[T]o  the
                       

extent  that findings  of  fact can  be  shown to  have  been

predicated upon, or induced  by, errors of law, they  will be

accorded diminished  respect on  appeal."  Dedham  Water Co.,
                                                                         

Inc.  v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st
                                                 

Cir. 1992) (citing RCI Northeast Servs. Div. v. Boston Edison
                                                                         

Co., 822 F.2d 199, 203 (1st Cir. 1987)).
               

          Application of these  principles is complicated  in

the  present  case  by  the district  court's  disregard,  in

several key  areas, of Rule 52(a)'s  further injunction that,

"[i]n all actions tried upon the facts without a jury . . . ,

the court shall find the facts specially and state separately

its  conclusions of  law thereon."   Fed.  R. Civ.  P. 52(a).

Rule 52(a) imposes  on the district  court "an obligation  to

ensure  that its  ratio decidendi  is  set forth  with enough
                                             

clarity to enable  a reviewing court reliably  to perform its

function."   Touch v. Master Unit Die Products, Inc., 43 F.3d
                                                                

754, 759  (1st Cir. 1995).   The court  made no  findings and

rulings whatsoever  on the important  statute of  limitations

issues  discussed  infra,  nor,   in  general,  did  it  make
                                    

                             -34-

subsidiary  findings  resolving disputed  evidence.   Thus in

finding that  defendants  had committed  fraud  in  promising

"facultative" reinsurance, the court stated that all  parties

understood  that  term   to  mean  risk-by-risk,   individual

certificate underwriting,  but made no attempt to distinguish

or explain  the great body  of evidence indicating  a broader

meaning.    Its finding  that  all plaintiffs  relied  on the

Placing Information is similarly  bereft of explanation as to

how this could be, given the absence of  proof of reliance in

a number of instances.

          These  omissions  have required  us  to remand  for

certain  additional findings.   Where  possible,  however, we

have  disposed of key issues or, if that was impossible, have

set out  a guiding legal standard for use on remand.  In sum,

we have endeavored to dispose of as much of the appeals as we

properly can at this juncture.

          B.  Choice of Law
                          Choice of Law

          We dispose first of certain contentions raised with

regard to  legal standards.  Plaintiffs challenge defendants'

assertion that the SANS Treaties contain an express choice of

law provision providing for  the application of Massachusetts

law  to plaintiffs' common law fraud and contract claims.  In

fact, Article XVIII of the SANS Treaties merely provides that

if  a dispute  is  litigated, plaintiffs  will submit  to the

jurisdiction of  any court  of competent jurisdiction  in the

                             -35-

United States, and "all matters hereunder shall be determined

in accordance  with the law and practice of such court."  But

while  plaintiffs' point is well taken, they go on to concede

that "[i]n this case,  Massachusetts choice of law principles

dictate the application of  Massachusetts substantive law  to

plaintiffs' common law claims."  Given the parties'  (and the

lower  court's)  general  acceptance  of  Massachusetts  law,

albeit  on  different  theories,  and  in  the absence  of  a

preferable choice, we shall apply Massachusetts law except as

otherwise  noted.  See Bird  v. Centennial Ins.  Co., 11 F.3d
                                                                

228,  231  n.5 (1st  Cir.  1993)  (accepting parties'  agreed

choice of law where there was a "reasonable relation" between

the litigation and the forum whose law had been selected).

          C.  The Burden Required to Prove Fraud
                          The Burden Required to Prove Fraud

          The defendants argue  strenuously, and the district

court  stated, that  the  plaintiffs were  required to  prove

fraud  by "clear  and convincing  evidence."   The plaintiffs

respond  that under  applicable Massachusetts law  fraud need

not be shown by anything more than the ordinary preponderance

of  the  evidence  standard  applicable  to  civil  cases  in

general.   Review  of  Massachusetts law  indicates that  the

plaintiffs are right.17

                    
                                

17.  Defendants  also  argue  that,  because  the  plaintiffs
adopted "clear  and  convincing evidence"  as the  applicable
burden of proof  in the  district court, and  did not  object
when defense counsel  stated their burden in those  terms, it
is  now too  late for  them to  contest the burden  of proof.

                             -36-

          In Callahan v. Westinghouse Broadcasting Co., Inc.,
                                                                        

372 Mass. 582, 363 N.E.2d 240 (Mass. 1977), the Massachusetts

Supreme  Judicial Court  ("SJC") commented  on the  burden of

proof  applicable  to a  libel  action governed  by  Gertz v.
                                                                      

Robert  Welch, Inc., 418 U.S.  323 (1974) and  New York Times
                                                                         

Co. v. Sullivan, 376  U.S. 254 (1964).  Recognizing  that the
                           

Supreme  Court required  "clear  and convincing  proof" in  a

libel case, the SJC nonetheless noted that,

          the  words  "clear and  convincing proof"
          had  not  been  discussed  in  our  cases
          [other than in the libel context] because
          the phrase had  not been used theretofore
          in this Commonwealth.  Indeed, because of
          the vagueness of an intermediate standard
          of proof, we have  not looked with  favor
          on the use of such a standard.

Callahan, 372 Mass.  at 583, 363 N.E.2d at 241.   We have not
                    

found  any  Massachusetts  case  stating that  a  "clear  and

convincing"  standard should be applied in a common law fraud

case,  nor have  we found  any indication  that the  SJC has,

since Callahan,  looked with  greater favor on  introducing a
                          

"clear and convincing" standard of  proof to cases where none

otherwise  exists.     See   Paul  J.  Liacos,   Handbook  of
                                                                         

Massachusetts Evidence 38-39 (5th ed. 1981) (stating that the
                                  

burden  of  proof  in  Massachusetts  civil  cases is  "by  a

                    
                                

However,  while  parties  may  stipulate to  the  facts  (and
perhaps even  to the  law, in different  circumstances), they
may not, by agreement or by some principal of acquiescence or
waiver,  compel  courts  to  follow a  clear  and  convincing
standard that is contrary to the governing law.

                             -37-

preponderance of the evidence"  and listing those few issues,

not  including fraud,  where a  higher standard  is required,

including  proof of a gift  causa mortis, contents  of a lost

will, irregularity  of official proceedings, and  malice in a

defamation action);  see also 9 John  Henry Wigmore, Evidence
                                                                         

in  Trials at Common Law   2498 (Chadbourn rev. 1981) (noting
                                    

that "clear  and convincing" standard is  commonly applied in

cases  of fraud, but failing to cite, in a comprehensive list

of   authorities,  any   Massachusetts  case   applying  this

standard).   We conclude, therefore,  that Massachusetts  has

not adopted  a "clear  and convincing" standard  in cases  of

fraud.

          D.  The Duty Owed to the Reinsurers
                          The Duty Owed to the Reinsurers

          The plaintiffs argue, and the district court found,

that  the defendants were under  a duty to  the plaintiffs of

utmost good faith ("uberrimae  fidei").  The defendants refer
                                                

to the same standard.  We agree  that a reinsurer like NERCO,

having  obtained by  treaty the  power to  impose significant

risks  and liabilities upon plaintiff retrocessionaires, owed

to  them  the utmost  good faith  in  its dealings  under the

treaties.  See generally Unigard Sec. Ins. Co., Inc. v. North
                                                                         

River Ins. Co., 4 F.3d 1049 (2d Cir. 1993).
                          

          This means  that,  as the  district court  properly

recognized, defendants  owed plaintiffs a  duty "to  exercise

good faith and to disclose all  material facts."  In the non-

                             -38-

marine  context, however, a claim of fraud may not be founded

on innocent  misrepresentation  and concealment.   Thus,  the
                       

district court properly required the plaintiff to prove that

          the defendant made a false representation
          of a material fact with  knowledge of its
          falsity  for the purpose  of inducing the
          plaintiff  to act  thereon, and  that the
          plaintiff relied  upon the representation
          as true and acted upon it to his damage.

Kennedy v. Josephthal  & Co.,  Inc., 814 F.2d  798, 805  (1st
                                               

Cir.  1987) (quoting Danca v. Taunton Sav. Bank, 385 Mass. 1,
                                                           

8, 429 N.E.2d 1129, 1133 (1982) (citations omitted)).

          The standard for fraudulent concealment is similar:

          Except  with  respect  to  marine  risks,
          concealment exists and avoids  the policy
          where the insured has knowledge of a fact
          material  to the risk which honesty, good
          faith, and  fair dealing require  that he
          should  communicate  to  the insurer  but
          which  he  designedly  and  intentionally
          withholds.

9  George J. Couch, Cyclopedia  of Insurance Law    38:2 (2nd
                                                            

ed. 1985) (Couch).  Massachusetts' adherence to the same rule

is indicated in Century Indem. Co. v. Jameson, 333 Mass. 503,
                                                         

504-05, 131 N.E.2d 767, 769 (Mass. 1956); see also Unigard, 4
                                                                      

F.3d  at   1069  (holding  that  simple   negligence  in  not

disclosing a material  fact does not constitute  bad faith so

as to avoid a policy of reinsurance).

III.      The Fraud Claims
                      The Fraud Claims

          We  turn  now  to  the  substantive  issues,   and,

initially, to the  fraud claim  which is pivotal  to all  the

                             -39-

district  court's  findings.    The district  court  saw  two

fundamental  issues in the case, both of them relevant to its

finding  of  fraud.    One was  "whether  Graham  Watson  did

underwrite  facultative reinsurance"  on the system  and non-
                                   

system  business.    The  other was  "whether  Graham  Watson

produced   'non-system   business'  by   establishing  direct

relationships    with   primary,    risk-bearing,   insurance

companies."

          A.  "Facultative" Underwriting
                          "Facultative" Underwriting

          Plaintiffs  argued, and  the district  court found,

that "the parties to the contract" (including, it would seem,

defendants themselves) "understood the  meaning of that  term

["facultative"]   in  its  standard  and  traditional  sense,

namely, underwriting on a risk-by-risk certificate basis, the

classic  meaning  of  the  term."    825  F.  Supp.  at  382.

According   to  the  court,   "NERCO  knew"  that  plaintiffs

understood "'facultative'  in  its standard  and  traditional

sense of risk-by-risk  certificate underwriting and  was well

aware  that  it, itself,  was secretly  using  the term  in a

special sense without ever disclosing such special meaning to

the Plaintiff  reinsurers."   Thus, the court  concluded, the

defendants'  representation  that   the  business  would   be

underwritten  on a risk-by-risk  individual certificate basis

was "knowingly false when made."  Id.
                                                 

          1.  No Express Misrepresentation
                          No Express Misrepresentation

                             -40-

          We hold that  these findings are clearly  erroneous

insofar  as  they  attribute  to defendants  an  implicit  or

express representation that they would engage exclusively  in

classic  risk-by-risk,  individual certificate  underwriting.

The  record is without evidence from which a court could find

that   defendants   represented   to  plaintiffs   that   the

facultative business  underwritten by Graham Watson  would be

limited to individual certificate, risk-by-risk underwriting.

          To be  sure, as the court found, there was evidence

that the overseas sub-brokers engaged to represent defendants

by their broker, G.L. Hodson, understood "facultative" in the

classic  risk-by-risk individual  certificate  sense.   Nigel

Huntington-Whitely,  the employee principally assigned to the

SANS  Treaty placements by  defendants' sub-broker, Sedgwick-

Payne,  testified  to  having  this understanding.    But  he

indicated that  it "may  have just  been an assumption,"  and

could not identify the source of his understanding beyond his

sense of what the term "facultative" might mean.  It was  not

established that the sub-brokers were told this by defendants

nor that prior to the initial (1980) Treaties the sub-brokers

communicated this view to  plaintiffs or to defendants during

negotiations.

          To  fill this gap,  plaintiffs point to Huntington-

Whitely's letter of June 24, 1981 (well over a year after the

Treaties  were entered  into), wherein  he states  in passing

                             -41-

that "Graham Watson is underwriting  each risk individually."

However, this statement clearly did not induce the plaintiffs

to  enter into  the 1980  and 1981  SANS Treaties,  given its

timing.   Moreover,  it is  arguable that  the semi-automatic

facilities, because they allowed Graham Watson's underwriters

to reject  individual risks, were  a form of  individual risk

underwriting and thus not  necessarily inconsistent with this

statement.

          Plaintiffs  also  point  to  the  1982  Anniversary

Information,  which  states  that,  on  non-system  business,

"Graham Watson  is  quoting  their  price  and  if  a  ceding

commission is required by the  original company, this is then

added to the premium required by Graham Watson."   Plaintiffs

argue  that  this  specifically  describes   individual  risk

negotiation.  However,  it could  just as easily  be read  to

refer to  Graham Watson  quoting a  price during the  initial

negotiations  leading to  the  formation of  a semi-automatic

facility.  Thus,  it is  not an explicit  promise to  perform

individual risk-by-risk certificate underwriting.   Moreover,

this  representation,  like  the  statement   in  Huntington-

Whitely's letter, was made  in 1981, and thus could  not have

fraudulently  induced  the plaintiffs  to participate  in the

1980 and 1981 SANS Treaties.

          Defendants'   chief   executive,   Graves   Hewitt,

testified  at  the  trial to  having  told  one  of the  lead

                             -42-

underwriters, Bailey, in 1979, about his dissatisfaction with

the method of using  a separate certificate as to  each risk,

and his intention,  in connection with the  SANS Treaties, to

use a single controlling facility for multiple risks, as  was

later  done by means of the semi-automatic MFCs.  Because the

district  court found  -- contrary  to Hewitt's  testimony --

that  defendants had not disclosed  their intent to use semi-

automatics,  we  must  assume  that it  did  not  credit that

testimony,  although nowhere  in its  findings did  the court

mention  and reject the testimony.   We do  not, in any case,

rely upon Hewitt's testimony  in determining that the court's

fraud  findings  premised  on  the  term  "facultative"  were

erroneous.

          Bailey  himself did  not attend  the trial  but was

deposed and  his deposition was read.   He did not describe a

meeting with Hewitt in  1979 nor any specific representations

having  been  made  to him  prior  to  the  execution of  the

Treaties  on the  character of the  facultative underwriting.

He testified  generally to "understanding" that Graham Watson

would assess and underwrite each risk separately, but did not

refer to any conversation or  occasion where any defendant so

promised.   Asked if he would  have considered semi-automatic

binding  authorities to be  facultative underwriting, he said

that "is not what I had intended and not what I had been told

from my own  recollection."  This was the closest  he came to

                             -43-

suggesting that he was  told by someone (defendants, brokers,

or  others?) that facultative meant what the judge found.  We

think  this  vague testimony,  which  makes  no reference  to

specific sources,  falls short  of supporting a  finding that

defendants  expressly  promised  to  engage  in  risk-by-risk
                      

underwriting only or knew that plaintiffs misunderstood their

intentions in this regard.

          2.    The Intended  Meaning  of  the Term
                            The Intended  Meaning  of  the Term
          "Facultative"
                      "Facultative"

          We similarly  hold  clearly erroneous  the  finding

that   defendants   "knew"    that   plaintiffs    understood

"facultative"  to  be  limited  to  risk-by-risk  certificate

underwriting.    There  is   no  evidence  of  statements  or

correspondence  by  plaintiffs  or their  representatives  to

defendants,  prior to  execution of  the slips  and treaties,

informing  defendants  that  the  plaintiffs  understood  the

meaning of facultative to be so limited.

           Of course, if the court properly could have found,

on the basis of the evidence, that the term "facultative" was

unambiguous, referring only  to individual certificate, risk-

by-risk underwriting,  then defendants would  be charged with

knowledge of that ordinary meaning.  However, as the evidence

clearly showed, that term, both standing alone and as used in

the   Placing  Information,   slips,  and   Treaty  Wordings,

encompasses  a variety  of  underwriting  methods, about  the

propriety of  which the  parties and their  experts disagree.

                             -44-

Whether or not  a term as  used by parties  to a contract  is

ambiguous is  a question  of law subject  to plenary  review.

ITT Corp. v.  LTX Corp., 926 F.2d 1258, 1261  (1st Cir. 1991)
                                   

(citations omitted);  see also  In  re Navigation  Technology
                                                                         

Corp.,  880 F.2d  1491,  1495 (1st  Cir. 1989)  ("Contractual
                 

language  is  considered   ambiguous  where  the  contracting

parties  reasonably differ  as to  its meaning.").   However,

where a term is ambiguous, its meaning presents a question of

fact, see Commercial Union Ins. Co. v. Boston Edison Co., 412
                                                                    

Mass.  545,  557,  591  N.E.2d  165,  172  (1992)  (citations

omitted),  a finding on which may only be reversed if clearly

erroneous. Fed. R. Civ. P. 52(a).

          As noted, the district court found that the parties

understood  the  meaning of  the  term  "facultative" in  its

"standard and traditional  sense, namely,  underwriting on  a

risk-by-risk  certificate basis."   If  by this  finding, and

others  like it, the district  court meant that  the term was

legally unambiguous,  being limited  in meaning to  only that

one type of underwriting,  it was wrong as  a matter of  law.

Expert  testimony  and  treatises  presented  by  both  sides

support  the  view that  the term,  as  used in  the industry

today,  has  been   broadened  beyond   its  classic   roots,

notwithstanding  plaintiffs'  insistence  that   the  classic

method is alone the proper one.

          Most likely  the court  did not  mean the term  was

                             -45-

unambiguous  as a matter of law, but rather concluded, on the

basis  of  all the  evidence, that,  as  used in  the present

circumstances,  it  should  be  given  the  limited   meaning

ascribed.18  Yet  the district court  offered no reasons  why

it gave  the term the  limited reading  it did.   Nor did  it

explain why it believed  defendants "knew" that plaintiffs so

restricted the term.   On the latter point,  it may have been

influenced  by testimony  from defendants'  principal, Graves

Hewitt,  who  said he  had as  good  an understanding  of the

London  insurance market as any American.  The judge may have

felt that,  possessing such  insight, Hewitt "knew"  that, as

some  English  witnesses  testified, "facultative"  would  be

understood to mean  risk-by-risk certificate underwriting  in

that market.   But absent evidence that  Hewitt actually knew

and  believed this,  such  a leap  would be  pure speculation

given Hewitt's own contrary testimony.  

          Moreover,   English   treatises   introduced   into

evidence   by   plaintiffs  indicate   that,  notwithstanding

plaintiffs'  witnesses, the  reinsurance industry  in England

                    
                                

18.  "When the  written agreement, as applied  to the subject
matter, is in  any respect uncertain or equivocal in meaning,
all the circumstances of the parties leading to its execution
may  be  shown for  the purpose  of  elucidating, but  not of
contradicting or changing its terms."  Affiliated FM Ins. Co.
                                                                         
v. Constitution  Reins. Corp., 416 Mass. 839, 842, 626 N.E.2d
                                         
878, 880 (1994) (quoting Keating v. Stadium Management Corp.,
                                                                        
24  Mass. App. Ct. 246,  249, 508 N.E.2d  121 (1987) (quoting
Robert Indus.,  Inc. v. Spence,  362 Mass.  751, 753-54,  291
                                          
N.E.2d 407 (1973)), review denied, 400 Mass. 1104, 511 N.E.2d
                                             
620 (1987).

                             -46-

recognizes types of  facultative reinsurance  other than  the

risk-by-risk  certificate variety.   A leading English writer

on  reinsurance,  Golding,  describes  in  his  authoritative

treatise   (introduced  by   plaintiffs)  various   types  of

facultative   reinsurance   other   than   the   risk-by-risk

certificate variety.   One variation Golding describes is the

so-called "cover in course of post."  He states:

                    It  will be clear  that much of
          the  labour  involved in  the facultative
          method  is  connected  with  getting  the
          necessary  initials  on  the  slips.   In
          modern  practice  this  can   be  largely
          avoided  by the  system  of  what may  be
          called giving cover "in course of post" -
          - though the term nowadays extends to the
          use of telex communications as much as to
          the mail.    The reinsured  will  arrange
          facilities with a  number of  reinsurers,
          whereby  it may  issue  request notes  by
          post, for one or more  lines of a risk to
          be  reinsured,  as may  be  agreed.   The
          reinsurers will then hold covered each up
          to  the amount  of its  agreed  share and
          remains so bound, unless and until it has
          signified its declinature  "in course  of
          post".    As a  rule  a  limit is  fixed,
          within which this must be notified say 48
          hours  after  receipt,  though  sometimes
          this  is  extended up  to  as  much as  a
          fortnight to allow for possible delays in
          transmission.  If  no declinature is made
          within the period, the reinsurer is bound
          in  the ordinary  way.   The  system does
          save a  great deal  of work, and  is much
          favored by reinsureds  accordingly.   Yet
                                                               
          it   may  be  emphasized  that  it  still
                                                               
          remains facultative  reinsurance, for the
                                                               
          reinsurer  is in no  way deprived  of its
                                                               
          power  to  decline, even  though  it must
                                                               
          accept responsibility in the meantime.
                                                            

C.E. Golding, Golding: The Law and Practice of Reinsurance 42
                                                                      

                             -47-

(K.V. Louw ed., 5th  ed. 1987) (emphasis supplied);  see also
                                                                         

R.L. Carter, Reinsurance 234-35 (2nd ed. 1983) (detailing use
                                    

of bordereau to report risks bound under the "cover in course

of post" method, which he also classifies as facultative).19

                    
                                

19.  Golding also states:

          The  subject  of facultative  reinsurance
          w[ould]  not  be  complete  without  some
          reference  to  the  form  of  reinsurance
          called  a   "facultative  obligatory"  or
          "open cover," which is generally regarded
          as belonging to  the facultative  section
          of the business and  is often so  treated
          in the books of a reinsurer.
                    An open cover is  a reinsurance
          arrangement under which the reinsured may
          at  its option  cede a  share of  certain
          defined risks, which share  the reinsurer
          is bound obligatorily to accept.  Such an
          arrangement thus partakes  partly of  the
          nature of a  facultative reinsurance  and
          partly of a treaty.   To the reinsured it
          is   facultative  because   cessions  are
          optional at its discretion.  . . . To the
          reinsurer the open  cover is more  in the
          nature of a treaty.  The obligation is an
          obligatory one and it  applies not to  an
          individual case  but  to all  cases of  a
          given class that may be ceded.  No matter
          how the  open cover may be  regarded in a
          reinsurer's  books, it  is clear  that it
          has  none  of  the  characteristics  of a
          facultative reinsurance and in particular
          it  lacks  the  fundamental feature,  the
          power,   inherent    in   a   facultative
          reinsurer,  to decline  a risk  if though
          fit.

Golding,  supra,  at  46-47.    The  open  cover,  as Golding
                           
describes  it,  seems  somewhat  similar   to  the  automatic
facility,  except that  under the  open cover,  the reinsurer
lacks  the ability to cancel the contract on short notice, as
it may under the  automatic.  As the somewhat  anomalous open
cover is  "generally regarded"  as facultative, so  much more
might  the  automatic  facility  be  so  regarded,  since  it

                             -48-

          But  even ignoring  these indications  that English

custom and  practice  have gone  beyond  classic  facultative

methodology, it is the American,  not the English, usage that

seems  to  us key.   The  underwriters  in London  and Europe

contracted  in the  slips with  defendant NERCO,  an American

company, for reinsurance "classified by the Reassured [NERCO]
                                                                 

as   Property   and  Casualty Facultative   Assumed  Business
                                                     

produced and  underwritten by  the Graham Watson  division of

Cameron  &   Colby,  Inc."    (Emphasis   supplied.)20    The

                    
                                

explicitly includes a right to reject  risks by rejecting the
entire facility.  Automatics were, in any event, a minor part
of  defendants'  business,  semi-automatics  having  been the
predominant mode.

20.  At footnote 7 of its opinion, the court stated that this
language

          was  understood  by  the  parties  to the
          contract  as  providing   NERCO  with   a
          limited  discretion  in  classifying  the
          types of  reinsurance  and that  is  this
          Court's  interpretation  on the  basis of
          the evidence.

It is  unclear precisely what the  court had in mind  by this
statement.   There was  testimony that the  contract language
meant that NERCO had discretion to classify a particular risk
as  either a  property or  a casualty  risk; there  was other
testimony  that it  was  standard language  which gave  NERCO
discretion to  determine what business was  facultative.  The
plain  meaning of  the language  seems to  us to  allow NERCO
reasonable, though  not unlimited, discretion  to decide what
types of reinsurance fit  within the stated classification --
namely,  as  "Property   and  Casualty  Facultative   Assumed
business  .  . .  ."   Determining  whether the  business was
"facultative"  as  well  as  whether  it  was  "property"  or
"casualty" would all  be included.   See Commercial Union,  7
                                                                     
F.3d  at 1052 (citing Jiminez v.  Peninsular & Oriental Steam
                                                                         
Navigation Co., 974  F.2d 221, 223 (1st Cir.  1992); Feinberg
                                                                         
v. Insurance  Co. of  N. Am.,  260 F.2d  523,  527 (1st  Cir.
                                        

                             -49-

facultative reinsurance NERCO  was to classify covered  risks

in  the  American,  not  the  English,  market.    NERCO  was

expressly delegated the right to "classify" the  reinsurance.

See supra  note 20.  In exercising  that right, NERCO was, of
                     

course,  held  to  a standard  of  reasonable classification.

Salem Glass Co. v. Joseph Rugo, Inc., 343 Mass. 103, 106, 176
                                                

N.E.2d 30, 32-33  (1961) (where a  contract leaves a  certain

discretion or power in  the hands of one party, that party is

under  a  duty to  exercise  that  power reasonably);  accord
                                                                         

Johnson v. Educational  Testing Serv., 754  F.2d 20, 26  (1st
                                                 

Cir. 1985), cert. denied, 472 U.S. 1029 (1985).  Nonetheless,
                                    

being  an   American  company  operating  here,  NERCO  would

obviously be  expected to  classify its business  pursuant to

American,  not English,  terminology.   Hence, to  the extent

there is  any difference  between the prevailing  English and

American  views  of  what  kind of  underwriting  the  market

regards as "facultative," the parties would have intended the

American interpretation to  control, absent evidence  of some

contrary intent.  Cf.  Hazard's Adm'r. v. New  England Marine
                                                                         

Ins. Co., 33 U.S. 557, 564 (1834) ("Underwriters are presumed
                    

to know the  usages and customs of all of  the places from or

to which they make insurances.").

                    
                                

1958)) ("In  construing a  contract, we must  give reasonable
effect  to all  terms  whenever possible.");  id. at  1052-53
                                                             
(citing Liberty Mut. Ins. Co. v. Gibbs, 773 F.2d 15,  17 (1st
                                                  
Cir. 1985)  (where unambiguous, contract terms  must be given
their plain meaning).

                             -50-

          To  be sure,  plaintiffs'  experts  gave  testimony

tending  to show that the American market understood the term

"facultative  reinsurance"  to mean  risk-by-risk certificate

underwriting.  One  might argue that  the district judge  was

entitled to believe plaintiffs' experts over defendants' (who

testified  to the  opposite  understanding),21  and to  infer

that  the ordinary  meaning  of the  term "facultative"  was,

therefore,  the traditional  one of  risk-by-risk certificate

underwriting.

          But  the  evidence  that  the  term  "facultative,"

within  the  American market,  embraces  more  than just  the

individual risk  certificate method  is simply too  extensive

for the  court to have rejected.  Normally, of course, we are

bound by the district court's choice among competing experts.

But  it is hard to gainsay experts such as defendants' expert

James  Inzerillo, see  supra note  21, when  even plaintiffs'
                                        

experts did not categorically deny the widespread use, within

                    
                                

21.  Defendants'   experts   testified   that   "facultative"
included reinsurance underwritten  by the semi-automatic  and
related  methods.    One  of defendants'  experts  was  James
Inzerillo,   the   former   president   of   Munich  American
Reinsurance Co., the United States branch of Munich Insurance
Co., the  largest reinsurer in  the world. He  testified that
individual risk underwriting was "by no means"  the only form
of  facultative reinsurance, and that MFCs and semi-automatic
and  automatic  facilities  were  all  forms  of  facultative
reinsurance.  Moreover, he testified that the largest direct-
writing professional reinsurers in  the country all used such
facilities  in   their  facultative  operations.     None  of
plaintiffs/  experts categorically denied  the widespread use
of such facilities in facultative operations.

                             -51-

the  facultative  operations   of  American  reinsurers,   of

facilities  like the semi-automatics  and automatics  here in

issue.   Plaintiffs' experts did  not, in fact,  testify that

the ordinary meaning of the term in the American  reinsurance

industry  was limited to  individual certificate risk-by-risk

underwriting.   Rather they intimated that  this was what, in

their own opinion,  the term properly  meant or should  mean.

Yet, the question  is not  the abstract use  of language  but

whether NERCO    having discretion under the slips and Treaty

Wordings    could reasonably classify the semi-automatic  and

other  methods it used in its own operations as "facultative"

and whether it committed fraud when it did so.

          The best  approach to answering this  question lies

in the  realities of  industry practice.   Cf.  Affiliated FM
                                                                         

Ins., 416 Mass  at 845, 626  N.E.2d at 881 ("Where,  as here,
                

the contract  language is ambiguous, evidence  of trade usage

is admissible  to determine the meaning  of the agreement.").

Plaintiffs' expert, Phelan,  conceded that American companies

commonly  used  facilities   similar  to  defendants'   semi-

automatics   and   automatics   within    their   facultative

departments.  He regarded this  as anomalous, and pointed out

practical considerations which  had led to that  development.

But while disapproving, he admitted  to the widespread use of

facilities  of  this  type  within  the  industry  under  the

                             -52-

facultative designation.22

          American  treatise  writers,  moreover,   like  the

English  writers  from whom  we  have  quoted, acknowledge  a

substantial,  even predominant,  modern trend towards  use of

facultative facilities similar to the semi-automatics here in

question.23    We  think  it is  substantially  beyond  cavil

                    
                                

22.  Phelan testified, on cross-examination:

          Q:    Now you  said  in  response to  Mr.
          Ritt's  question,  if  I  understood  you
          correctly,    that    the    professional
          reinsurers  in  this  country   in  their
          facultative  departments  commonly  write
          semiautomatic  and  automatic  facilities
          and  call  them  facultative; isn't  that
          right?
          A:  Yes.
          Q:    And  you   have  testified,  if   I
          understand it, that there is nothing, per
          se,  wrong  with  doing  so;  isn't  that
          right?
          A:  That is correct.

23.  For instance, Langler, writing in America in the 1950's,
describes  an arrangement very much like the MFCs used by the
defendants, which he places squarely in the facultative camp.
He says,

          Such facultative business as is now being
          done  by  Reinsurance  Companies  in  the
          main,  is   transacted  under  Agreements
          somewhat  similar to  the enclosed.   The
          offices   ceding   the  business   either
          prepare   binders   and/or   certificates
          supplied by the Reinsurer or, if equipped
          to  do so,  will furnish  reports of  the
          business  on an itemized bordereau, . . .
          . It is, however, the invariable right of
          the Reinsurer (or should  be) to ask  for
          the  cancellation,  within  5 days  after
          receipt  of advices,  of  any cession  or
          cessions submitted under the terms of the
          agreement,  otherwise the  reinsurance is

                             -53-

                    
                                

          considered binding  on both parties.   It
          should  be  noted that  this cancellation
          privilege  is  worthless unless  itemized
          reports are received,  from which it will
          be  possible to  review the  cessions and
          extract  one  or  more  for  cancellation
          notice, if desired.

Willian  J.  Langler,  The  Business  of  Reinsurance  103-04
                                                                 
(1954).  Langler includes a sample contract for use with this
method, which contains the following clause:

          Cancellation  Privilege.   The  Reinsurer
                                             
          binds itself to accept reinsurances ceded
          to  it  hereunder with  the understanding
          however that it may cancel any cession or
          cessions within five  days after  receipt
          of  advices  . .  .  upon  notice to  the
          Ceding Company.

Id.  at 106.  This  clause is not  dissimilar to cancellation
               
clauses  found in the MFCs  used by the  defendants to assume
business.

          The district court quoted  from 2 Klaus Gerathewohl
et  al.,   Reinsurance  Principles  and   Practice  1   (John
                                                              
Christofer La Bonte trans., 1980) in support of its view that
semi-automatic  and automatic facilities are not a legitimate
form of facultative reinsurance.   Gerathewohl does state, as
a general proposition,  that facultative reinsurance  "always
covers  a single  risk."   However, he  states, in  a section
entitled   "The   management   of   facultative   reinsurance
business,"  that "[i]n  order  to keep  the direct  insurer's
management  and  administration  operations  for  facultative
reinsurance  business  at  a  minimum,  it  is  essential  to
rationalize  -  ie  [sic]  standardize    -  all  operational
                       
processes  as far  as  the individual  nature of  facultative
reinsurance  will allow."  Id. at 12 (emphasis added).  Among
                                          
the   methods  used   "particularly  by   large  professional
reinsurance  companies  that  specialize in  the  facultative
business," id. at 13, is the following:
                          

          Application   of    General   Terms   and
          Conditions  of   Facultative  Reinsurance
          containing general principles  applicable
          to all cessions  made.  Such streamlining
          and   standardization    of   facultative
          reinsurance    agreements    avoids   the

                             -54-

that, in  recent times,   the term  "facultative reinsurance"

includes methods,  in  addition to  traditional  risk-by-risk

certificate  underwriting, similar  in  concept to  the semi-

automatics.

          Given this body of evidence,  including plaintiffs'

expert's  concession  as to  the  classification,  we see  no

adequate basis,  from the term "facultative"  itself, for the

judge  to  infer   that  defendants  necessarily  knew   that

plaintiffs  would or should  interpret "facultative," as used

in  the slips and Treaty Wordings, as limited solely to risk-

by-risk certificate  underwriting.   While the latter  is the

original and classic method, see  Unigard, 4 F.3d at 1053-54,
                                                     

other  "streamlined" forms  are  clearly  now being  utilized

within the  industry under the rubric  of "facultative," both

here  and abroad, including types in  which the reinsurer can

be bound on individual risks by the reinsured acting pursuant

to  the  terms of  a general  authorizing  contract.   Such a

                    
                                

          necessity  to  negotiate  the  terms  and
          conditions  on  each individual  case and
          also  excludes  possible  cases of  doubt
          owing   to   the   absence   of   express
          stipulations.

Id.  at 14-15.  Thus, Gerathewohl cannot stand as support for
               
a definition  of facultative  underwriting that  excludes all
but   individual   risk-by-risk   negotiation.      Moreover,
Gerathewohl  is  a  German   author,  writing  for  a  German
reinsurance company.  His views, while probably authoritative
in that context, cannot be taken  as authoritative over those
of writers  more intimate with  the common  practices of  the
American reinsurance market.

                             -55-

contract requires  the reinsured  to report the  placement of

the  reinsurance to the reinsurer via a bordereau; and it may

give the reinsurer the right,  within a specified time frame,

to  reject   any  particular  risk  thereafter       but  not

necessarily  ab initio.   The  semi-automatics in  issue here
                                  

were designed  along these lines.   Facilities employing this

method were developed  to offset the paperwork and high costs

associated with classic  certificate facultative  reinsurance

individually   negotiated  in   advance  on   a  risk-by-risk

basis.24     The  hallmark  of   facultative  reinsurance    

evaluation   of  each  risk  separately  by  the  reinsurer's

underwriter    is  sought to be preserved  by maintaining the

right  to  cancel  after the  fact.    Although  a window  of

exposure  is  created during  which  the  reinsurer is  bound

without his consent on what the latter may later decide is an

unacceptable risk,  the potential for damage  is minimized by

the  relative  shortness  of  the exposure  and  by  contract

conditions which  prevent  the  reinsured  from  binding  the

reinsurer to  predescribed types of risks  the reinsurer does

                    
                                

24.  The  First  State  reinsurance, as  the  district  court
found, fell within the automatic and/or semi-automatic method
of  underwriting.    See supra  section  I.B.2.    The record
                                          
supports that  finding, in the  sense that the  practices and
understanding between  First  State and  Graham  Watson  were
generally  analogous  to  those under  the  formalized  MFCs,
although  the close  employment  settings may  have indicated
greater de facto underwriting control.
                            

                             -56-

not wish to cover.25

          We  conclude that there  is insufficient support in

the record for the court's  key fraud finding that defendants

knowingly   misrepresented  to  plaintiffs  that  they  would

receive  one type  of reinsurance  (the  classic risk-by-risk

certificate form  of facultative), while intending  all along

to provide another type  (semi-automatic and automatic).  The

evidence  does,  indeed,  support  the court's  finding  that

defendants intended to supply reinsurance underwritten by the

semi-automatic  and (to  a  minor degree)  automatic  methods

(although  not   to  the   complete   exclusion  of   classic

facultative, a small amount of which was also produced).  But

the record  does not support the finding  that the defendants

knew that the plaintiffs expected to receive only the classic

risk-by-risk certificate form of facultative reinsurance, nor

does  it support  the  finding that  defendants made  knowing

misrepresentations with respect to the term "facultative".

          3.  No Concealment
                          No Concealment

                    
                                

25.  The   district   court    found   that    semi-automatic
underwriting   differed   from   the   classic   risk-by-risk
facultative method  in that  "the 'right to  cancel' and  the
'right to reject' are effective only at the time the right is
                                                            
exercised by  the reinsurance underwriter and  well after the
                                                                     
reinsured  risks had attached  to the SANS  Treaties."  These
rights were  not effective ab initio.  But this appears to be
                                                
a  price the  industry  has  been  willing  to  pay  for  the
streamlined operation,  as Golding notes, see Golding, supra,
                                                                        
at  42 ("Yet  it  may be  emphasized  that it  still  remains
facultative  reinsurance,  for the  reinsurer  is  in no  way
deprived  of its power to decline, even though it must accept
                                                                         
responsibility in the meantime.")
                                          

                             -57-

          Before leaving this  subject, we shall consider  an

alternate  theory  of   fraud  based  on  use  of   the  term

"facultative," a  theory which, arguably, might  enable us to

uphold the district court's result.  

          Defendants  doubtless  knew  that  the  streamlined

forms of  facultative underwriting  they intended  to provide

under  the SANS Treaties were not the same as the traditional

form of facultative underwriting.   Graves Hewitt's testimony

indicated as much.  He testified that most of the facultative

business   in  his   company's   NERFAC  division   had  been

underwritten  in the  classic individual  certificate manner.

He  wanted  Graham Watson  to  switch  to the  semi-automatic

method  in  order to  get rid  of  the paperwork  and expense

associated  with  the  classic  method.26   The  record  also

bears  the inference (assuming, as we  infer, supra, that the
                                                               

court discredited  Hewitt's  testimony that  he  so  informed

Bailey in  1979)  that defendants  not  only did  not  inform

plaintiffs     or their own sub-brokers    of their intention

                    
                                

26.  Hewitt testified that when he approached Bailey in 1979,
he did so intending to short circuit the  classic facultative
arrangements which NERFAC was using because "we had mountains
of paper to  file . . . .  I  made it clear to  Ralph we were
not interested in doing business that way."  The court, as it
was entitled to, apparently rejected Hewitt's testimony.  (If
accepted, it  would have  seriously undermined any  theory of
intentional  misrepresentation.)    The  testimony  at  least
indicates  that  Hewitt was  well  aware  that the  MFCs  and
accompanying  modes  of underwriting  were  in  some sense  a
departure  from past  practice. There  was evidence  of their
occasional  use by NERFAC in  the past, but  most of NERFAC's
underwriting was by the traditional facultative method.

                             -58-

to streamline their  underwriting, but kept this  information

to  themselves.    Does  it  follow  from  this  that,  while

negotiating the  SANS Treaties, defendants  designedly failed

to volunteer  to plaintiffs  facts  material to  the risk    

i.e.,  their  intention  to  use  this  type  of  facultative
                                                        

underwriting     "which honesty, good faith  and fair dealing

require[d] that [they] should communicate to the insurer"?  9

Couch   38:2.

          Although argued by plaintiffs, the above theory was

not  adopted by the district court.  Instead, the court found

that   defendants  had   misled  plaintiffs  by   making  the

"knowingly    false"    representation   that    "reinsurance

underwriting   would   be    individual   risk    certificate

underwriting."   While there  is insufficient  record support

for such an express misrepresentation, it can be  argued that

defendants, being under  the duty to exercise the utmost good

faith, Unigard, 4 F.3d at 1066, were required to disclose, as
                          

a fact  material to the  risk, their proposed  utilization of

streamlined facultative underwriting procedures  going beyond

the traditional method.

          Couch states:

          In effecting a  contract of  reinsurance,
          it is incumbent upon the original insurer
          to communicate to the reinsurer all facts
          of  which  it  has  knowledge  which  are
          material to the risk, and where it states
          as  a fact something  untrue, with intent
          to deceive,  or where  it  states a  fact
          positively as true  without knowing it to

                             -59-

          be true, and which tends  to mislead, the
          policy is avoided where such statement or
          fact materially affects  the risk;  also,
          any  undue   concealment  or  intentional
          withholding  of  facts  material  to  the
          risk,  which ought in  good conscience to
          be communicated by the  original insurer,
          avoids  the  contract, without  regard to
          whether the knowledge or information with
          respect to material facts was acquired by
          the   original   insurer  previously   or
          subsequently  to  the   writing  of   the
          original contract.

19 Couch   80:77.  While the above speaks of the relationship

between  original insurer  and reinsurer,  we think  the same

general   principles  apply   between   a   retrocedant   and

retrocessionares in a reinsurance treaty.  The question boils

down to whether a  failure to disclose plans to  deviate from

traditional risk-by-risk underwriting,  should be  considered

"undue  concealment  or  intentional  withholding   of  facts

material  to the risk, which  ought in good  conscience to be

communicated. . . ."   Id.  We answer in the negative for two
                                      

reasons.

          First,  in  determining   what  information  is  so

material as to require disclosure by  the insured sua sponte,
                                                                        

courts recognize that the insured need not disclose "what the

insurer  already knows or ought  to know."   9 Couch   38:15.

It is  said that  "[a]  minute disclosure  of every  material

circumstance is  not required."   Puritan  Ins. Co.  v. Eagle
                                                                         

S.S. Co., S.A., 779 F.2d 866, 871 (2d Cir. 1985).
                          

          Ordinarily the insured is not required to
          make  more than  a  general statement  of

                             -60-

          facts, and is not expected to go into the
          details about which the insurer manifests
          no interest and makes no inquiry . . . .

9  Couch   38:58.  There is a "wide distinction . . . between

[the  insured's  duties in]  those  cases where  there  is no

inquiry  and  those where  questions  are  propounded by  the

insurer."  Id.
                          

          Here there  is no indication that  plaintiffs asked

defendants during the negotiation  of the first SANS Treaties

to  describe  what  types  of  facultative underwriting  they

proposed  to  engage  in.    To the  contrary,  the  executed

contracts   expressly   allowed   defendants   a   reasonable

discretion in  this regard.   And as we  have just  held, the

type  of underwriting  methods they  utilized, while  not the

classic form of facultative reinsurance, fell within industry

parameters.

          The  parties here  were of  equal power  and highly

knowledgeable.  The slips and Treaty Wordings were negotiated

by  and  between  sophisticated   reinsurance  professionals.

Without first being asked  by the other party, one  would not

expect defendants to volunteer a plethora of details on their

proposed  underwriting practices.   Matters  would have  been

different had defendants  affirmatively misrepresented  their

intended underwriting practices or given  incomplete, evasive

or incorrect  answers to questions asked.  We see no basis to

infer "undue  concealment" from  their  failure to  volunteer

                             -61-

further    information    about   facultative    underwriting

characteristics where, for all  that appears, the subject was

not broached.

          The  slips,  as said,  were  worded so  as  to vest

discretion in NERCO as  to the business it would  classify as

"facultative," indicating a willingness  to leave this choice

to  NERCO.  As previously discussed, NERCO's choice had to be

reasonable  and exercised in  good faith.   Salem  Glass, 343
                                                                    

Mass. at 106, 176 N.E.2d  at 32-33; Johnson, 754 F.2d at  26.
                                                       

But, within those  limits, the decision  was left in  NERCO's

hands.    To say  that  NERCO  had  a  duty to  volunteer  to

plaintiffs, unasked, the nature  of its proposed  facultative

underwriting facilities and, in  effect, secure their advance

approval, goes  beyond the parties'  bargain as written.   If

plaintiffs  had wished  to limit  defendants to  a particular

facultative  method,  that   requirement  should  have   been

inserted in  the contract.  It  was not.  The  duty of utmost

good  faith should  not enable  a party, whose  bargain later

turns  sour,  to  expand the  terms  of  an original,  fairly

bargained  contract.27     Given   the  equal   strength  and

                    
                                

27.  To argue  that the plaintiffs'  underwriters were lulled
into not asking because they did not  understand the American
meaning of  "facultative"  is  surely  to  underestimate  the
acuity of the London  underwriters who write insurance around
the world.   As  already mentioned, English  authorities like
Golding, supra,  indicate that,  even in the  British market,
                          
streamlined  methods  of  facultative underwriting  are  well
known.   But assuming different  considerations in reinsuring
risks in other  parts of the world, underwriters are expected

                             -62-

sophistication of the parties, and the fact that underwriting

considerations  now in  dispute were  such obvious  topics of

inquiry  had  plaintiffs wanted  to  know  more, we  are  not

convinced that  the  record  establishes  that  the  intended

methods  of proposed  facultative underwriting  were material

items of the type  defendants were required, without inquiry,

to disclose.

          However, even if the materiality of the information

were  such that  defendants should  have volunteered  it, the

record  lacks evidence  from which  to find  that defendants,

recognizing its materiality, withheld it  deliberately rather

than through  oversight.  Claims in  fraud against non-marine

reinsurers  cannot  rest  on  a  showing  of  mere  negligent

concealment.  Unigard, 4  F.3d at 1069.    The semi-automatic
                                 

and like  methods employed  were, as above  indicated, within

accepted  parameters of  facultative classification,  and the

contract left their use to defendants' discretion.   Plans to

use  such  facilities  were  not  so  abnormal  as  to  imply

fraudulent intent from the mere fact  of non-disclosure.  Any

argument  that  plans  to   use  semi-automatics  had  to  be

disclosed because that method  of underwriting was especially

risky is belied by  the absence of evidence linking  the SANS

                    
                                

to  seek information  as to  the terms  and practices  in the
insured's  market  if  they  are interested.    Cf.  Hazard's
                                                                         
Adm'r., 33  U.S. at 564  ("Underwriters are presumed  to know
                  
the usages  and customs of all of the places from or to which
they make insurances.").

                             -63-

Treaty losses with the  method of underwriting used.   To the

contrary,  defendants presented evidence  which, if believed,

could indicate that  the losses under the  Treaties were less

than  the  industry  averages  for  the  period.28    It   is

undisputed, as the judge stated, that the market in which the

losses  occurred  was  "disastrous" generally.    Substantial

contrary  evidence   was  not   introduced,  nor   was  there

substantial evidence of large Treaty  losses from risks of  a

type that would likely not have been reinsured under the more

deliberate  classic  facultative  procedures.    We  find the

record inadequate  to support  a finding that  in failing  to

disclose  their  plans  to  use  semi-automatic  and  related

underwriting  methods, defendants were acting with fraudulent

intent.

          We  thus  reject,   as  an  alternative  means   of

affirming   the  court's  "facultative"  fraud  finding,  the

fraudulent withholding  theory above discussed.   We conclude

that  the  court clearly  erred to  the  extent it  based its

finding  of  fraud  on  defendants' promise  to  produce  and

underwrite "facultative" reinsurance.29

                    
                                

28.  Cf.  Unigard, 4  F.3d at  1054 (noting  that "in  recent
                             
years, the  reinsurance market  has witnessed an  increase in
participants  and  a decline  in  profitability  due to  huge
environmental losses")

29.  For reasons set out in our discussion of the plaintiffs'
contract  claims,  infra,  we  reject  the  district  court's
                                    
determination of fraud  insofar as based on its  finding that
defendants did  not, in  fact, "produce" or  "underwrite" the

                             -64-

          B.  Risks Obtained Directly from Primary Insurers
                          Risks Obtained Directly from Primary Insurers

          The district court's fraud determination rests also

on  findings  of  misrepresentations  in  the  1979   Placing

Information  concerning  Graham  Watson's  intent  to  obtain

reinsurance  directly from selected  primary insurers without

intermediaries.   The court found that  (1) NERCO represented

that it  would "produce  'non-system business'  from primary,

risk-bearing, insurance  companies  directly"; (2)  that  "in

fact,  it  produced  most  of such  business  from  [Managing

General    Agents]    through    intermediaries   and    from

intermediaries  themselves,  and  yet  never  disclosed these

material  matters  to  the  Plaintiff reinsurers  as  it  was

required  to do"; (3) that plaintiffs had put their trust and

confidence in, and entered into the SANS Treaties in reliance

upon,  the foregoing  representations  (as well  as upon  the

supposed  representation  of   individual  risk   certificate

underwriting,   rejected  above);   (4)  that   the  inducing

representations  to produce  and underwrite  reinsurance from

selected  primary sources,  and by  a direct  approach rather

than through intermediaries, "were knowingly false" and "were

not  kept  by  NERCO  nor  did  NERCO  intend  to  keep  such

promises."

          Two  complementary  theories   emerge  from   these

                    
                                

reinsurance, but rather improperly delegated those duties  to
others.

                             -65-

findings.   First,  that defendants  never intended,  when in

1979  they  wrote  and  circulated  the  Placing  Information

containing  the challenged  representations,  to live  up  to

them.   Second,  that when  later, during  the course  of the

Treaties,   it  became  apparent   that  "direct"  non-system

business was unavailable, and defendants decided to seek non-

system business through intermediaries, they did not disclose

"these material matters, as [they were] required to do."

          1.  Fraud in the Inducement
                          Fraud in the Inducement

          The   first  theory   amounts   to  fraud   in  the

inducement.   While the misrepresentations were of intentions

as  to a  course  of action  in  the future,  the  deliberate

misstatement of present intentions can constitute fraud.

          Present intention as to a future act is a
          fact.  It is  susceptible of proof.  When
          such intention  does not exist, .  . . it
          is a misrepresentation of a material fact
          . . . .   The  statement of  fact  as  to
          present intention of the defendant, being
          susceptible of actual knowledge and being
          a fact alleged to have been false, may be
          made  the  foundation  of an  action  for
          deceit.

Feldman  v. Witmark,  254  Mass. 480,  481-82,  150 N.E.  329
                               

(1926),  quoted in Barret Assoc.,  Inc. v. Aronson, 346 Mass.
                                                              

150,  190 N.E.2d  867, 868  (1963).   It is true  the Placing

Information  was   never  incorporated  into   the  contracts

(consisting  of   the  slips  and  Treaty   Wordings).    But

defendants  prepared and  circulated the  Placing Information

specifically  to  induce   persons  and  entities  like   the

                             -66-

plaintiffs  to  enter into  the  Treaties.   Knowingly  false

material  statements  therein  inducing  reliance   would  be

actionable fraud.30

          Defendants respond that  the representation in  the

Placing  Information  of an  intention  to  "develop a  close

working  relationship with  selected  primary companies"  and

related  statements  were   accurate  reflections  of   their

intentions  when made.   In  support of  this, they  point to

evidence  of their  efforts after  the Treaties  were entered

into  to   develop  a  working   relationship  with   primary

companies.  They  also argue that at all times  they did have

an ongoing  direct relationship with First  State.  Utilizing

brokers and  MGAs to provide NERCO  with reinsurance business

was said to  have occurred  only after it  was apparent  that

these earlier, sincere efforts had failed.

          But the court was entitled to find otherwise, as it

did.  Anderson, 470 U.S. at 573-74 (if evidence is subject to
                          

more than one reasonable interpretation, it cannot be clearly

erroneous).    Before  the Placing  Information  was written,

there was  evidence that NERCO commonly  used intermediaries.

Statements by  defendants' witnesses at trial  and in certain

of defendants'  planning documents  issued prior to  the SANS

Treaties suggest an  intention to  continue to do  so in  the

                    
                                

30.  Defendants challenge  the district court's  finding that
all  plaintiffs  relied  on  these  misrepresentations.    We
discuss reliance in the following section.

                             -67-

Graham Watson operation.   And defendants' efforts, after the

Treaties were in place, to secure non-brokered business could

be found to be  predictably ineffectual, further suggesting a

lack of intention to secure the direct business described  in

the   Placing   Information.      The   Placing   Information

representations,  it  might  be inferred,  more  reflected  a

calculated  effort to  entice  plaintiffs to  enter into  the

Treaties than honestly  to project defendants' real  business

plans.  While susceptible of another construction, the record

adequately  supports the court's finding that representations

in  the  Placing Information  as  to  Graham Watson's  direct

writing intentions were knowingly misstated.

          Defendants argue  that even  though NERCO  may have

used   intermediaries,  it  nonetheless   complied  with  its

representation  that  it   would  develop  a  close   working

relationship  with primary companies.   Defendants  point out

that the reinsurance it wrote with the  aid of intermediaries

came,  for  the  most  part,  from  highly  regarded  primary

insurance companies.  They also argue that the intermediaries

enabled them  to develop  relationships with  these companies

that might, in time,  become "direct."  But the  court, as it

did,  was  entitled  to   read  the  Placing  Information  as

inconsistent  with the securing  of business  through brokers

and MGAs.   The Placing  Information says, for  example, that

"[f]aculative   reinsurance    emanating   from   reinsurance

                             -68-

intermediaries will continue to be written separately through

NERFAC."   While defendants seek to place a different meaning

on this, the  court was entitled to read this  as saying that

business through  intermediaries  would  not  be  handled  by

Graham Watson.   And  there were other  statements supporting

the same impression.

          The court was entitled  to conclude that there were

significant  differences  between  a   "direct"  relationship

between  NERCO   and   selected  primary   insurers   and   a

relationship by  brokers and  MGAs.  These  differences could

affect the quality of the business, at least in some people's

minds, and might  have caused some plaintiffs,  had they been

aware  of  defendants'  actual  plans,  to  reevaluate  their

decision to participate in the SANS Treaties.  In the case of

business  obtained  through  MGAs,  for   instance,  the  MGA

underwrote the risk  for the primary  insurer (as opposed  to

the  underwriting  being  performed  by  the  primary insurer

itself);   communications,   premiums,   and  reporting   and

accounting documents were routed through the broker.  The MGA

was not  at risk should an actual loss arise.  Bailey, a lead

underwriter, strenuously objected to business underwritten by

intermediaries, regarding it as of lesser quality.  The court

was entitled to believe that the non-system business provided

through Baccala and Shoop and others was materially different

from the  business represented  in  the Placing  Information.

                             -69-

We,  therefore,  affirm  the  district court's  finding  that

material and  knowing  misrepresentations were  made  in  the

Placing Information in 1979.

          2.  Concealment
                          Concealment

          The court  also found  that NERCO "never  disclosed

these material matters to the Plaintiff reinsurers as  it was

required to do."   This appears to  be a finding that,  while

the  Treaties were in  effect, NERCO violated  its good faith

duty  to  disclose  to   plaintiffs  matters  coming  to  its

attention material to  the risk     most notably its  growing

use   of  intermediaries  for  non-system  business  and  its

abandonment of the  plans set out in  the Placing Information

to establish direct relationships with primary insurers.  See
                                                                         

Unigard,  4 F.3d  at  1069.   This  trend, however,  was  not
                   

totally unannounced  by defendants.  In  the 1981 Anniversary

Information,   defendants   revealed   that,   although   the

preponderance  of that  year's  business was  system business

from First  State, a "relatively small proportion of the non-

system business had been  written on an excess of  loss basis

emanating  from Baccala  and Shoop  Insurance Services."   At

this  time,   Bailey was  already well  aware that  NERCO was

receiving the Baccala and Shoop business.  He objected to it,

but  finally went along for that  year.  Because Bailey was a

lead  underwriter,  this  conceivably  (although  we  do  not

decide)  put all  the plaintiffs  for whom  he was  acting on

                             -70-

notice that more  such business could  be anticipated in  the

following year,  yet  neither he  nor  anyone else  took  the

simple  precaution of  inserting  a prohibition  against this

type  of business in the renewal slips for 1981 and following

years.

          The district  court dismissed the  1981 Anniversary

Information disclosure in the following finding:

          Although  the  Plaintiff reinsurers  were
          aware that Baccala and Shoop, an MGA, had
          ceded to the SANS  Treaties approximately
          five percent of the total business during
          the  first  year, 1980,  they  were never
          apprised that, during  the ensuing  three
          years,  Baccala and Shoop  would cede the
          majority  of  "non-system  business"  and
          that other MGAs and  intermediaries would
          cede,  in  conjunction  with Baccala  and
          Shoop, most of the  "non-system business"
          to the SANS Treaties.

This  finding  does  not  explain, however,  why  Bailey  and

others,  once on notice that business was being accepted that

was contrary  to representations in the  Placing Information,

did  not  continue  to  protest  and  try  to  head  off  the

acceptance  of further  such business.   Moreover,  the court

made  no reference  to  other evidence  that  certain of  the

plaintiffs may  have learned a considerable  amount about the

nature and source of defendant's business during  the life of

the  SANS  Treaties.     Such  evidence  is  relevant,  under

discovery principles, to the various statutes of limitations,

including the three year  fraud statute, infra.  It  may also
                                                          

be substantively relevant to plaintiffs' fraud claims and the

                             -71-

recovery rights  of individual plaintiffs.   Although we have

sustained  the  district  court's  finding   that  defendants

deliberately  misstated  their  business  plans  in  1979, if

certain plaintiffs renewed their annual participations in the

SANS Treaties even after  becoming aware that defendants were

using intermediaries and lacked "direct" business, this could

affect their right  to recover in fraud for subsequent Treaty

business, and might conceivably cast doubt as  to their right

to  recover at all, on some theory of acquiescence or waiver.

These matters require  the making of  further findings as  to

what  information  became  known   to  whom,  and  when,  and

determination  of  the legal  effect  of  any such  knowledge

and/or notice.

          Therefore, although we affirm the  district court's

finding  that  knowing misrepresentations  were  made  in the

Placing Information, we direct that reconsideration  be given

on  remand  to  the  legal significance  of  the  information

revealed in  the 1981 Anniversary Information,  and any other

information the court finds  was subsequently received by the

plaintiffs, or  some of  them, as it  relates to  plaintiffs'

rights  to abandon  their reinsurance  obligations under  the

SANS Treaties,  and recover damages for  losses already paid.

In considering  such matters, the district  court should take

into account, among other  things, defendants' duty of utmost

good faith, the  identity of those plaintiffs affected by the

                             -72-

particular  information,  the legal  effect on  plaintiffs of

information possessed  by Bailey because of  his special role

as  a lead underwriter, and  the fact that  the Treaties were

renewable annually.   The district court  did not discuss  or

make findings on these matters.  So as to leave a clear field

on   remand,  we   vacate   (without,  however,   necessarily

disapproving)  and  leave  for   further  evaluation  by  the

district  court,  the  court's  finding   that  NERCO  "never

disclosed these material matters to the plaintiff reinsurers,

as it was required  to do."  However, we  affirm the district

court's   finding   that   the   defendants'   made  material

misrepresentations in the Placing Information regarding plans

to obtain business directly from primary insurers and related

matters.

          On  remand it will also be  necessary for the court

to consider exactly  which of the SANS Treaties were infected

by the  misrepresentations made in  the Placing  Information.

This question may be  affected not only by which  information

came to what plaintiffs during the term of the SANS Treaties,

but  also by  the fact  that the  business produced  by First

State was  obtained directly, without the  involvement of any

intermediary.    No part  of  that  business, therefore,  was

seemingly affected by these misrepresentations although we do

not  foreclose the issue.  In  addition, because the district

court  made  no subsidiary  findings  concerning the  various

                             -73-

arrangements  under  which Graham  Watson  assumed non-system

business,    we cannot  tell  whether  all  of that  business

involved the use of brokers and/or intermediaries, or whether

some  portion  of  it  was  obtained  directly  from  primary

insurers.   On remand,  the district  court should  take into

account  all  such  issues  in determining      assuming  the

statutes of limitations and other matters do not stand in the

way of recovery    what relief to provide.

          C.  Reliance
                          Reliance

          The district court properly listed reliance as  one

of the  elements of  a common law  fraud under  Massachusetts

law.  825 F. Supp. at 380 (stating that plaintiffs must prove

that they "relied upon that representation as true and  acted

upon it to their detriment").   The court then found that the

representation that defendants would obtain business directly

from  primary insurers was "made  by NERCO with the intention

of inducing the Plaintiff reinsurers  to enter into the  SANS

Treaties, and,  in reliance on  said . .  . representation[],
                                          

the Plaintiff reinsurers did enter into  the SANS Treaties to

their detriment."   825 F. Supp. at 383  (emphasis supplied).

The court  made no  subsidiary findings which  would indicate

what  evidence  it credited  in finding  that  all of  the 32

plaintiffs31 relied. 

                    
                                

31.  Thirty-two  being the  number  of plaintiffs  before the
district court at the time it rendered judgment.

                             -74-

          Defendants  challenge  this  finding, pointing  out

that a majority of the plaintiffs failed to present any proof

whatsoever that  they had  individually read and  relied upon

the Placing  Information.  Underwriters for only  some of the

plaintiffs testified that they had relied upon the challenged

statements.  Plaintiffs conceded in closing argument that for

many of the individual plaintiffs there was no specific proof

of reliance.

          Reliance  is  an element  of  common  law fraud  in

Massachusetts,  as the  district  court stated.   Danca,  385
                                                                   

Mass. at  8, 429 N.E.2d at  1133 (citations omitted).   It is

"general insurance law" that reliance  is an element of fraud

in the  insurance context.    E.g., Foremost  Guar. Corp.  v.
                                                                     

Meritor  Sav.  Bank,  910  F.2d 118,  123  (4th  Cir.  1990).
                               

Plaintiffs nonetheless argued below  and on appeal that proof

of  reliance was not needed,  citing Shapiro v. American Home
                                                                         

Assur. Co., 584 F.  Supp. 1245 (D. Mass. 1984).   In Shapiro,
                                                                        

the district  court said that "[t]he  weight of Massachusetts

authority does not consider  'reliance' as a separate element

which an  insurer  must  prove  in  order  to  invalidate  an

insurance  policy."  Id. at 1250.  But Shapiro, and the cases
                                                          

cited therein, see Pahigian  v. Manufacturers' Life Ins. Co.,
                                                                        

349   Mass.  78,   206   N.E.2d  660   (1965);  Davidson   v.
                                                                    

Massachusetts Casualty Ins. Co., 325 Mass. 115, 89 N.E.2d 201
                                           

(1949); Bouley v.  Continental Casualty Co., 454 F.2d 85 (1st
                                                       

                             -75-

Cir.   1972)  (applying   Connecticut  law),   are  factually

distinguishable  from  the present  case.    Shapiro and  its
                                                                

predecessors  dealt with  misrepresentations  made on  a form

application for a policy  of insurance, which application was

then  attached  to and  became  a  part of  the  policy.   In

Shapiro,  the application stated on its  face that "any claim
                   

or  action arising [from an  incorrect answer to the previous

question in  the application] is excluded  from this proposed

coverage."  Shapiro, 584 F. Supp. at 1247.   The Shapiro line
                                                                    

of  cases  relate to  what have  been called  "warranties" in

insurance law.  See  9 Couch,   36:1 ("Generally  speaking, a
                               

warranty in the law of insurance is a statement, stipulation,

or  condition which forms a part of the contract, whereby the
                                                            

insured  contracts  as to  the  existence  of certain  facts,

circumstances, or  conditions, the literal truth  as to which

is  essential to  the validity  of the  contract.") (emphasis

supplied).   Warranties are typically  enforced regardless of

reliance.  In the  present case, the Placing Information  was

not a warranty.  It was neither incorporated in, nor attached

to, the contracts eventually  executed, nor did the contracts

themselves  contain  any  promise that  Graham  Watson  would

obtain  business  directly from  primary insurers.   Shapiro,
                                                                        

Pahigian, and  Davidson were, in addition,  all cases decided
                                   

under Mass. Gen.  L. ch.  175,   186,  a consumer  protection

statute not at  issue here, and arguably inapplicable to this

                             -76-

situation.  Cf.  Liberty Mut.,  773 F.2d at  18 (refusing  to
                                         

apply Mass. Gen.  L. ch.  175,   112,  a consumer  protection

statute,  in  the  reinsurance  context, and  noting  that  a

contract  of reinsurance  is more  "a contract  of indemnity"

than  a policy of insurance).  Finally, in Shapiro, the court
                                                              

found  that even if reliance were a required element of proof

under   186,  such reliance  would be found  on the  evidence

before  the court.   Shapiro,  584 F.  Supp. at  1249.   This
                                        

obviously cannot be said here of those plaintiffs who did not

present individual evidence of reliance, infra.   Plaintiffs'
                                                          

counsel  conceded in  closing  argument that  what he  called

subjective reliance by the underwriter who wrote the risk was

not  proven here in many  instances.  We,  therefore, find no

basis  in  Shapiro  for  making  an  exception  here  to  the
                              

Massachusetts requirement  that a plaintiff  seeking recovery

in fraud must prove reliance on the misrepresentations made.

          As  direct  evidence  of  reliance   is  admittedly

lacking as  to many  plaintiffs, the question  arises whether

there may be circumstantial  evidence of reliance to  fill in

the gap.  We cannot find such evidence.  The plaintiffs were,

for the  most part, unrelated entities  from several European

nations.  They  were approached  by no fewer  than five  sub-

brokers.  Defendants, it is true, concede in their brief that

the SANS  "placing materials  were distributed by  the London

sub-brokers to prospective  retrocessionaires, including  the

                             -77-

plaintiffs, in London and  Central Europe."  But  delivery of

the placing materials to a plaintiff is not the same as proof

that the  recipient looked at and  relied upon them.   Nor is

the fact  that certain other plaintiffs read  and relied upon

the placing  materials evidence  that all plaintiffs  did so.

Several of  the plaintiffs were  unable to produce  copies of

the  Placing Information from their  own files, and many were

unable  to present the testimony of anyone who could say that

the Placing  Information was seen  and relied upon  in making

the decision to enter into the SANS Treaties.  There was also

evidence that, at  least as  to some of  the plaintiffs,  the

sub-broker soliciting  participation and the  underwriter who

made the  decision to participate were  corporate affiliates,

thus raising the possibility of some motive for participation

unrelated to the defendants' inducing statements.

          In  light  of  these  facts,  the district  court's

finding  that  all  plaintiffs  had  relied  upon  the  false

statements  in  the   Placing  Information  is   legally  and

factually insupportable and must be vacated.   We remand with

directions for the  district court to determine which  of the

plaintiffs  have  proven  reliance  in  conformity  with  the

requirements of  Massachusetts law,  and to deny  recovery in

fraud to any plaintiff who has not met this burden.

IV.       Contract Claims
                      Contract Claims

          We turn to the plaintiffs' contract claims.

                             -78-

          (1) The slips called for the cession of "[b]usiness

classified  by the  Reassured [NERCO]  as  . .  . Facultative

Assumed  business produced  and  underwritten by  the  Graham

Watson division of  Cameron & Colby  Co., Inc."   As we  have

held, the character of the business ceded could reasonably be

classified  as facultative  business.   We find  insufficient

record  support   for  the   court's  finding   that,  "NERCO

contracted under  the SANS Treaties that  Graham Watson would

examine each individual risk submission by the ceding company

on  a risk-by-risk basis and, if the  risk be accepted, . . .

would  then issue  an  individual certificate  to the  ceding

company."   We accordingly reject, as  clearly erroneous, the

court's finding of breach of contract based upon the supposed

non-facultative  character of  the reinsurance  retroceded to

plaintiffs.

          (2) The district court further found that

          NERCO   also  breached   its  contractual
          obligation   to   produce  property   and
          casualty  facultative  assumed  business,
          for under the  "automatic" and/or  "semi-
          automatic"  method  of  underwriting  the
          reinsurance business is actually produced
          by the ceding source companies and not by
          the original reinsurer.

We  hold this  finding to  be clearly  erroneous.   While the

primary insured  or its agent  may indeed have  the authority

under the automatic or semi-automatic methods to initiate the

issuance of the  reinsurance, this can only be  done pursuant

to the reinsurer's authorization in  the MFC or other advance

                             -79-

arrangement.    The  reinsurance  was clearly  "produced"  by

defendants  by negotiating and  setting up the  MFCs or other

arrangements under which the business was assumed.

          (3)  The  district  court  also  found  that  NERCO

breached its  contractual  representation that  the  business

would be "underwritten" by Graham Watson.  The district court

found  a  contractual  breach because,  under  the  automatic

and/or  semi-automatic  methods   employed,  "Graham   Watson

delegated  its  reinsurance  underwriting  authority  to  the

source  company  to  automatically  cede risks  to  the  SANS

Treaties."   The  district court  was undoubtedly  right that

under  the   semi-automatic  and  like  methods,  the  ceding

company, or  the MGA  representing  it, was  given the  right

initially to assign  the risks  to NERCO, and  through it  to

plaintiffs,  before review  by Graham  Watson's underwriters.

However,  this was done  under facilities  previously entered

into with  Graham Watson, containing  underwriting terms  and

requirements satisfactory to the latter.  And, in the case of

most  of the business, Graham  Watson had the  right within a

stated  time to reject any risk upon receipt of the bordereau

or  lay-off sheet disclosing it, if the risk did not meet its

underwriting approval.   Graham Watson  was underwriting  the

business,  albeit using  the streamlined  facultative methods

discussed earlier in  the opinion.   As we  have held,  these

methods  fall within  the industry's purview  of "facultative

                             -80-

underwriting."  Our decision on that point dictates rejection

of  the   district   court's  above   finding,  which   rests

essentially  on   the  erroneous  view  that   the  types  of

facilities   defendants  were  using  were  illegitimate  and

unacceptable underwriting vehicles.  We hold, therefore, that

this finding, too, was clearly erroneous.

          Having  said  this,  we   remain  troubled  by  the

evidence, and the  court's findings,  of possible  systematic

inadequacies  in the quality  of the  underwriting performed.
                                        

Conceivably,  underwriting could  be  so deficient  as to  be

tantamount to a breach of the duty to underwrite.  Plaintiffs

insisted, with support from their experts, that Graham Watson

was less  than diligent in its underwriting  efforts once the

risks were reported  to it by means of the  layoff sheets and

bordereau.   There was evidence  of delay  and of  inadequate

underwriting data.   There was also some evidence that Graham

Watson's underwriters may never  have rejected a single risk.
                                           

The district court found that Graham Watson did not have "the

quantity or quality of information it needed to facultatively

underwrite the  risks  ceded to  the  SANS Treaties."    This

finding was,  to be  sure, based  on the  court's incorrectly

narrow  definition  of facultative  reinsurance,  and  was in

support of  its finding  that Graham  Watson did  not perform

facultative underwriting.   Whether, under  this court's very

different  view of  the propriety of  defendant's streamlined

                             -81-

facilities,  Graham Watson's "underwriting" could possibly be

found  to  have   been  so  inadequate  as  to   violate  its

contractual duty to "underwrite"  is a question we are  in no

position  to answer.   We  leave this  issue to  the district

court, on  remand, with  instructions to also  decide whether

other considerations     such as  the bar of  the statute  of

limitations    leave it viable.

          (4) The district  court found that NERCO  "violated

its contractual  obligation  to 'co-reinsure  for 10  percent

participation on  all 'System Business'  ceded hereunder,' as

required by  Warranty No.  2 in  the Slip."   Warranty  No. 2

reads as follows:

          2)  Reassured [NERCO] co-reinsure for 10%
          participation  on  all "System  Business"
          ceded hereunder.

The plaintiffs  argue that this  term was  inserted into  the

Slips at Bailey's  insistence because he wanted NERCO to keep

a  significant risk in  the business, thus  providing it with

"an increased incentive to exercise care and prudence in risk

selection."  They then argue that in fact, NERCO did not keep

a  10   percent  retention,  but  instead   obtained  outside

reinsurance of  that 10 percent  which reduced the  amount of

risk it  kept for itself to  a "minuscule" amount.   In other

words,  they  read  the  Warranty to  require  a  10  percent

unreinsured retention.   The  district court appears  to have
                       

also  read  the warranty  in this  manner;  this is  the only

                             -82-

reasonable reading of the court's statement,  as there was no

evidence  that NERCO  did not  initially  retain at  least 10

percent of each risk it ceded.

          The  defendants  respond  that  Bailey's  testimony

shows  that the  intent of  the Warranty  was not  that NERCO

could not obtain any reinsurance of its retention, but rather

that NERCO should have  exposure to losses that was  equal to

or  greater than Bailey's  firm's exposure.   They  point out

that the evidence shows that, in fact, "NERCO's actual losses

on  the portion of the  SANS risk portfolio  that it retained

(unreinsured) was $105,000,000      an amount virtually equal

to  all of  the losses  of all  of the  plaintiffs combined."
                                          

(Emphasis in original.)

          We  believe  the court  was  entitled  to view  the

evidence on  this point as  it did.   There is no  doubt that

NERCO  did reinsure  some  portion of  its retention;  Hewitt

admitted as much, and the plaintiffs introduced into evidence

some of the reinsurance  contracts used by NERCO to  reinsure

the retention.  There  was also evidence on both sides of the

question  whether  the parties  intended  Warranty  No. 2  to

require NERCO to keep an  unreinsured retention.  While there

are   no   contemporaneous   documents   using   the   phrase

"unreinsured  retention" or words  of similar import, several

witnesses,  including  Nigel   Huntington-Whitely,  who   was

pivotally  involved  in   the  negotiation  of   this  point,

                             -83-

testified  that  an   unreinsured  retention  was  what   was

intended.

          The  issue of  what  the parties  intended by  this

language is an  issue of  fact, which we  must uphold  absent

clear error.   See Commercial  Union, 412 Mass.  at 557,  591
                                                

N.E.2d at  172.  We,  therefore, affirm the  district court's

finding of  breach of  contract on  this ground, subject,  of

course, to any relevant findings the district  court may make

on remand concerning the effect of the statute of limitations

and other material issues remaining open, infra.
                                                           

V.        The Statute of Limitations
                      The Statute of Limitations

          The  defendants  argue   that  "virtually"  all  of

plaintiffs' claims should have  been barred by the applicable

statute  of limitations  defenses raised  below.   As already

noted,  we  have not  been  able to  find  in the  record any

explanation by  the district  judge of  his reasoning or  his

view  of  the  law  and   the  facts  on  these   potentially

dispositive  issues.   The  possible effects  of the  various

statutes  of limitations  on the  different claims  cannot be

reviewed without  findings and  rulings based on  the record.

We, therefore, express no opinion at this time but direct the

district court, upon  remand, to consider  the impact of  the

applicable statutes of limitations on the various claims, and

make appropriate findings and rulings.

          The  parties  agree that  the  date  from which  to

                             -84-

measure the statutes  of limitations is  July 12, 1988,  when

the  plaintiffs first raised their claims of fraud and breach

of contract,32 by adding these claims to their Second Amended

Complaint.   The applicable statute of  limitations for fraud

is three  years, Mass.  Gen. L. ch.  260,   2A;  Tagliente v.
                                                                      

Himmer, 949 F.2d  1, 4 (1st  Cir. 1991);  that for breach  of
                  

contract is  six  years, Mass.  Gen.  L. Ann.  ch.  260,    2

(1992).   The plaintiffs argue that each of these statutes is

subject to the discovery rule, meaning that a cause of action

did  not accrue  until the  plaintiffs learned  or reasonably

should  have learned of  the factual basis  for their claims.

White  v. Peabody Const. Co.,  Inc., 386 Mass.  121, 129, 434
                                               

N.E.2d  1015, 1020  (1982); see  also Cambridge  Plating Co.,
                                                                         

Inc.  v.  Napco, Inc.,  991 F.2d  21,  26-28 (1st  Cir. 1993)
                                 

(discussing  Massachusetts  discovery  rule); Tagliente,  949
                                                                   

F.2d at 4  (same).   If plaintiffs' claims  accrued prior  to

July 12, 1982 (contract) or July 12, 1985 (fraud), and unless

the discovery rule applies so as to delay the accrual of  the

alleged  causes  of action  beyond  these  dates, then  those

claims would have been barred.

          There  are various  facts which,  if proven  to the

                    
                                

32.  As  we say  below, the  district court erred  in finding
liability under Mass. Gen. L. ch.  93A.  Therefore, we do not
discuss the  statute of  limitations relevant to  that claim.
Nor, do we discuss the statute of limitations relevant to the
RICO  claim because  we affirm  the district  court's finding
that RICO does not apply to the facts of this case.

                             -85-

satisfaction  of the factfinder, might necessitate evaluation

of  whether any  or all  of  plaintiffs' fraud,  and possibly

other,  claims were  time  barred.   There  is, for  example,

uncontroverted  evidence that  the  lead  underwriter,  Ralph

Bailey, had  personal knowledge prior to  1981 of defendants'

use  of  the MGA  Baccala  &  Shoop.   Another  matter  to be

examined   is  the   disclosure  in   the  1981   Anniversary

Information, distributed  to the plaintiffs in  late 1980, of

the fact that business had been assumed from Baccala & Shoop.

There are also in the record other indications of information

being  conveyed to one  or more plaintiffs  at various times,

which need evaluation to determine whether the running of the

limitations periods  was triggered at those  moments and with

what effect.   For  example, some  of the  plaintiffs stopped

paying claims made by NERCO as early as the fourth quarter of

1982.  The plaintiffs were obligated to make such payments by

their  own reciprocal duty  of utmost good  faith, unless, of

course, they had knowledge of a bona fide defense to payment,
                                                     

such as the defendants'  fraud.  See Contractors  Realty Co.,
                                                                         

Inc.  v. Insurance Co.  of N.  Am., 469  F. Supp.  1287, 1294
                                              

(S.D.N.Y. 1979) (noting  the "reciprocal duty on  the part of

the insurer to deal  fairly, to give the assured  fair notice

of his obligations, and  to furnish openhandedly the benefits

of  a  policy").    Also  there  were  letters and  testimony

suggesting  that certain people connected with plaintiffs had

                             -86-

knowledge as to various matters early in the 1980's.33

          We  direct the  district court  to evaluate  all of

these  items, and any others  it deems relevant,  and to make

such findings  and rulings as it believes  appropriate in the

circumstances.    We  leave  entirely to  it,  in  the  first

instance,  the determination of whether and  how to apply the

Massachusetts discovery  rule or  other relevant rule  of law

and how to calculate,  on this record, the proper  running of

the applicable statutes of limitations.

VI.       The Chapter 93A Claims
                      The Chapter 93A Claims

          In  a footnote,  the district court  found, without

more, that "the  conduct of NERCO constitutes  a violation of

Chapter  93A,  Section   2  of  the   General  Laws  of   the

Commonwealth of  Massachusetts."   825 F.  Supp. at  383 n.9.

Mass.  Gen. L. ch. 93A,   2 declares unlawful "unfair methods

of  competition and unfair or  deceptive acts or practices in

the conduct of  any trade or  commerce."   Mass. Gen. L.  ch.

93A,   11 provides for the  bringing of a civil action by the

victim  of such  practices.   An action  may not  be brought,

however,  "unless the  actions and  transactions constituting

                    
                                

33.  For  example, Eric  Verhes  of Compagnie  de Reassurance
D'Ile de France  apparently knew  of the use  of Baccala  and
Shoop  by  mid-1982; and  plaintiff  Imperio  Re exchanged  a
series of  letters with NERCO via the sub-broker Carter Brito
E Cunha Ltd.  in late 1984 discussing the use  of Baccala and
Shoop,  and commented in one dated December 21, 1984 that the
fact that business was "underwritten by Baccala and Shoop . .
. would appear to be a further point contravening the wording
of the Contract."

                             -87-

the alleged unfair  method of  competition or  the unfair  or

deceptive   act   or   practice   occurred    primarily   and

substantially within the commonwealth."  Id.
                                                        

          The defendants  argued below  as they do  on appeal

that the acts and practices said to constitute a violation of

   2 did  not  occur primarily  and substantially  within the

commonwealth,  as  required by     11.   The  district court,

however,  made  no  finding  on this  important  point.   The

closest the  court came to finding where the critical conduct

occurred  was a statement, in  the course of  a colloquy with

counsel, that it  was "implicit . . . activities  had to have

been found in Massachusetts."  The court went on  to say that

while  "there were  activities  within the  state that  would

constitute  a violation of  93A, as I  found . .  . there are

more important activities, more crucial  activities that took

place overseas."  We are thus left without a specific finding

and with considerable confusion  as to what the court  had in

mind.  Given the absence of guidance -- indeed, with guidance

that points in  opposite directions --  we must determine  as

best  we can whether  the   11  locus requirement  was met on

this record.

          In insisting  that the  acts and practices  said to

constitute  a   violation   did  not   occur  primarily   and

substantially within the  commonwealth, the defendants assert

as follows:   The  Placing Information  was prepared by  G.L.

                             -88-

Hodson in  New York.   It was  then transmitted  to the  sub-

brokers in  London, and communicated by  the sub-brokers from

London  to the  plaintiffs  at their  places  of business  in

London and continental Europe.  The plaintiffs, to the extent

they  relied on  any  misrepresentations, did  so in  Europe,

signed the slips and Treaty Wordings in Europe,  and suffered

any  financial  injury in  Europe.    As  the  judge  himself

indicated, "notwithstanding that there were activities within

this  state,  at  least  and  maybe  the  most  crucial  were

overseas."  The latter  reason caused the court to  refuse to

award double or treble  damages, a discretionary matter under

   11.  Defendants argue that  this shows a misreading of the

statute, because if the district court found that the crucial

actions creating liability had  occurred overseas, they could

not   have   occurred    primarily   and   substantially   in

Massachusetts, hence he should have found no liability at all

under  ch.  93A.     Defendants  insist  that  if  misleading

statements  are made  in Massachusetts  but are  received and

relied  upon  outside  the  commonwealth,  there  can  be  no

liability under ch. 93A.

          The  plaintiffs  reply   that  the  district  court

implicitly  found that  the defendants  failed to  meet their

statutory burden of proving that their fraudulent conduct did

not occur  primarily and substantially  in the  commonwealth.

Plaintiffs  disagree that  the only  relevant conduct  is the

                             -89-

placing of the Treaties overseas, and argue that the relevant

conduct includes (1) the location of the defendants and their

business, (2) the initial drafting of the placing information

in Boston, prior to its communication to G.L. Hodson, (3) the

fact  that  all  subsequent false  and  deceptive information

emanated  from Boston,  (4)  certain  later meetings  between

various plaintiffs and defendants, and between defendants and

their brokers, in Boston, (5) the place of performance of the

contracts (Boston), (6) the  day-to-day operation of the SANS

program in Boston, (7) the alleged obstruction of plaintiffs'

attempts  to inspect NERCO's books and records in Boston, and

(8) the reaping of the benefits of the fraud in Boston.  They

argue that Massachusetts case law does not provide a  bright-

line test for the "primarily and substantially" standard, but

rather requires a "pragmatic, functional analysis" which must

include  consideration not only  of where the communications,

reliance, and injury took  place, but also where the  bulk of

the more mundane activities did not occurr.

          A  finding   whether  the  defendant  has  met  its

statutory  burden   of  proving   that  its   activities  and

transactions   occurred   primarily   and  substantially   in

Massachusetts is a matter of law, subject to plenary  review.

Clinton Hosp.  Ass'n v.  Corson Group,  Inc., 907  F.2d 1260,
                                                        

1264  (1st Cir. 1990).   In Bushkin Assoc.,  Inc. v. Raytheon
                                                                         

Co.,  393  Mass. 622,  473  N.E.2d  662  (1985)  the  Supreme
               

                             -90-

Judicial Court determined,  on facts bearing much  similarity

to  the  transmission of  the  fraud  claims  here, that  the

violation did  not occur "primarily  and substantially within

the commonwealth."  Ch. 93A,   11.  The plaintiff, Bushkin, a

New  York  resident, based  his  ch.  93A claim  on  "alleged

representations made during a telephone call or calls in 1975

between a  Raytheon officer  in Massachusetts and  Bushkin in

New  York."  Id. at 638,  473 N.E.2d at 672.   As a result of
                            

information Bushkin  disclosed  to Raytheon  over the  phone,

Raytheon  learned  that  Beech  Aircraft  Corporation  was  a

possible acquisition target.   Bushkin alleged  that Raytheon

had  promised to  pay  him a  fee  if it  were successful  in

acquiring Beech.   After telling  him that it  was no  longer

interested in  Beech, Raytheon  acquired it  with the  aid of

another consultant, and denied Bushkin any compensation.  Id.
                                                                         

at 624-26, 473 N.E.2d at 664-65.

          In finding against Bushkin,  the SJC noted that the

telephone calls  were between  the two states,  the allegedly

deceptive statements  were made in Massachusetts but received

and acted on in New  York, and that any loss was  incurred in

New York.  Id.  Based on Bushkin, this court in Clinton Hosp.
                                                                         

minimized the location of the dissembler at the time he makes

a  deceptive statement  for  purposes of  the "primarily  and

substantially" analysis.   "Rather," we  said, "the  critical

factor is the locus of the  recipient of the deception at the

                             -91-

time of the reliance."   Clinton Hosp., 907 F.2d  at 1265-66.
                                                  

We likewise gave weight to the situs of the loss.  Id.
                                                                  

          Viewing  the  conduct  surrounding  the  fraudulent

misrepresentations in the  Placing Information points  to the

same result  as that  reached in Bushkin.   As in  that case,
                                                    

non-Massachusetts  residents are  here attempting  to recover

for the allegedly  unfair trade practices of a corporation in

Massachusetts, under a  statute designed  to protect  against

in-state frauds.  As in that case, the defendant's day-to-day

business activities were largely carried on in Massachusetts.

As in that case, we shall assume that the allegedly deceptive

acts or  practices    in particular,  the Placing Information

   originated  in Massachusetts, but the  Placing Information

was  intended   to  be,  and  was,   circulated  abroad,  and

plaintiffs  received and acted upon  it there.   The situs of

the plaintiffs' losses was  also in Europe.  It  follows that

with  respect   to  plaintiffs'   claims  of  fraud   in  the

inducement,  the defendants  have met their  statutory burden

under   11 of  proving that their fraudulent conduct  did not

occur primarily and substantially  in Massachusetts.  On this

point, we reverse the district court's ruling that defendants

are liable under Mass. Gen. L. ch. 93A,   2.

          This does  not, however, end  the matter.   In this

opinion, we have sustained the district court's finding  of a

breach of contract stemming from defendants' violation of its

                             -92-

contractual obligation  to retain 10% of  all system business

ceded to  the SANS  Treaties.   We have also  left open,  for

further  consideration  on  remand,  a  contract  claim   for

possible failure to perform underwriting as promised.  And we

have  left open the possibility,  on remand, of  a finding of

fraudulent concealment  of the  use of intermediaries  and of

other conduct  deviating from representations in  the Placing

Information,  in  the years  following the  initial Treaties.

The  above activities,  or  some of  them, might  conceivably

support --  although we take  no position at  this time --  a

finding   of      2   violations   occurring  primarily   and

substantially  within Massachusetts.   Accordingly,  while we

hold that fraud in  the inducement based upon representations

in  the  Placing  Information  did not  occur  primarily  and

substantially within  Massachusetts, we  do not at  this time

foreclose  liability under  Mass. Gen.  L. ch.  93A  based on

different conduct of the type mentioned above.  We leave such

determination to the district court on remand.

VII.      The RICO Claims
                      The RICO Claims

          In  the  same  footnote   in  which  it  found  the

defendants liable under ch. 93A, the district court found for

the  defendants  under the  Racketeer Influenced  and Corrupt

Organizations  Act ("RICO"), 18  U.S.C.    1961-1968, stating

that,

          Title  18,  United States  Code, Sections
          1961-1968 do not  apply to  the facts  of

                             -93-

          this   case  on   the  ground   that  the
          Plaintiffs have failed to  establish that
          they  suffered   an  "investment"  injury
          under Section 1962(a) or an "acquisition"
          injury under Section  1962(b) or that the
          three Defendants were separate persons as
          required under Section 1962(c).

825 F. Supp.  at 383 n.9.34   In No. 93-2338,  the plaintiffs

appeal from this ruling, arguing that the district  court was

wrong with respect to all three sections of RICO.

          In order  to  recover in  a  civil RICO  action,  a

plaintiff must  prove both that the defendant violated one of

the provisions of 18 U.S.C.   1962 and that the plaintiff was

injured  "in  his business  or  property  by  reason of"  the

defendant's  violation.   18  U.S.C.     1964(c).   Thus,  in

proving a right to recover for a RICO violation premised upon

                    
                                

34.  No judgment  dismissing the  RICO claims was  entered by
the  district court; the only disposition  of those claims is
the above-quoted language in the  district court's Memorandum
and Order of June  7, 1993.  See Fed.  R. Civ. P. 58  ("Every
                                            
judgment  shall be  set  forth on  a  separate document.    A
judgment is effective only when so set forth and when entered
as provided in Rule 79(a).").  We proceed, however, as though
the judgment  for the plaintiffs issued on September 21, 1993
pursuant  to  that  order  had  included  language  expressly
dismissing the RICO claims.   See Fiore v.  Washington County
                                                                         
Community Mental  Health Ctr., 960  F.2d 229,  236 n.10  (1st
                                         
Cir.   1992)  (en  banc)   (holding  that  separate  document
requirement is waived  by filing of timely notice of appeal).
"The  'separate  document'  rule  does  not  defeat appellate
jurisdiction where a timely appeal  is filed and the  parties
do  not suffer any prejudice  from the absence  of a separate
document  entering  judgment  on  claims  that  were  clearly
disposed of in an earlier order."  Southworth Mach. Co., Inc.
                                                                         
v.  F/V  Corey  Pride,  994  F.2d  37,  39  (1st  Cir.  1993)
                                 
(citations omitted); see also supra, n.18 (discussing failure
                                               
of   district   court   to   expressly   dismiss  defendants'
counterclaims).

                             -94-

   1962(a), the plaintiffs had to prove that they were harmed
                                                                         

by reason of NERCO's use or investment of income derived from

a pattern  of racketeering activity in  some enterprise (here

alleged to be Graham Watson) engaged in interstate or foreign

commerce.  18 U.S.C.     1962(a), 1964(c).  This  they failed

to  do.  Even assuming  that they had  been defrauded through

the use of the mails or international wires, see 18 U.S.C.   
                                                            

1961(1)(B), that alone is  not enough to show that  they were

harmed  additionally  by NERCO's  use  or  investment of  the

proceeds of that fraud to establish or operate Graham Watson.

See,  e.g., Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153,
                                                           

1188 (3d  Cir. 1993)  ("the plaintiff  must allege  an injury

resulting from the investment of racketeering income distinct

from  an injury  caused by  the predicate  acts themselves").

The plaintiffs  have simply  "repeat[ed] the crux  of [their]

allegations   in  regard  to   the  pattern  of  racketeering

activity."  Id.
                           

          Under    1962(b), the  plaintiffs had to  show that

they  were  harmed  by   reason  of  NERCO's  acquisition  or

maintenance  of control of an enterprise through a pattern of

racketeering activity.  Again,  even assuming that plaintiffs

proved the  underlying RICO  violation, they failed  to prove

any  harm   beyond  that  resulting  from   the  fraud  which

constituted  the  predicate act.    See,  e.g., Danielsen  v.
                                                                     

Burnside-Ott Aviation  Training Ctr.,  Inc.,  941 F.2d  1220,
                                                       

                             -95-

1231   (D.C.   Cir.  1991)   ("plaintiffs   must   allege  an

'acquisition' injury,  analogous  to the  'use or  investment

injury'  required under   1962(a) to show injury by reason of

a   1962(b)  violation").  The  plaintiffs claimed that  they

were harmed by their participation  in the SANS treaties, not

by the defendants' acquisition or control of Graham Watson.

          As  to  the    1962(c)  claim,  the district  court

stated  that  "the  three  Defendants   were  [not]  separate

persons."   In fact, however, NERCO, First State, and Cameron

& Colby were distinct corporate entities, with separate legal

identities.  The distinction  between those three entities is

not, however, decisive  for   1962(c) purposes.   The statute

requires that the person (i.e., the three defendants) engaged
                                    

in  racketeering be  distinct  from the  enterprise (in  this
                                                               

case, Graham Watson, not a defendant) whose activities  he or

she  seeks  to  conduct  through racketeering.    See,  e.g.,
                                                                        

Miranda v. Ponce Federal  Bank, 948 F.2d 41, 44-45  (1st Cir.
                                          

1991) (citing  cases) ("the same entity cannot do double duty

as  both  the  RICO  defendant  and  the  RICO  enterprise").

Assuming the court meant to find that NERCO, First State, and

Cameron  & Colby were not distinct from Graham Watson, it was

clearly entitled,  on the evidence presented, to  make such a

finding.   Up  until mid-1980,  Graham Watson  was merely  an

unincorporated division of Cameron & Colby.  After that time,

although  it  became   a  separate  wholly-owned   subsidiary

                             -96-

corporation,  all  of its  employees were  in fact  Cameron &

Colby  employees, and  there is  no evidence  whatsoever that

Graham  Watson took  any actions  independent of  its parent.

Cf.  Brittingham v.  Mobil Corp., 943  F.2d 297,  302-303 (3d
                                            

Cir. 1991)  (noting that    1962(c)  claims may  be dismissed

"when  the   enterprise  and  defendant,   although  facially

distinct,  are in reality no different from each other").  We

accordingly  affirm  the district  court's  dismissal  of the

plaintiffs' RICO claims.

VIII.     Damages
                      Damages

          The   district   court   ruled   that   "[i]n   the

circumstances of this case, it  is not feasible to reasonably

calculate  damages  on  the  basis  of  the  'benefit  of the

bargain' method  of damages."   The court  accordingly (after

further  proceedings)  entered  judgment  in  the  amount  of

$38,118,940.07  (which  sum  included prejudgment  interest),

plus  postjudgment   interest  and  costs.     This  sum  was

calculated to  be the difference  between claims paid  by the

plaintiff reinsurers less the  premiums they received  during

the course of  the SANS  Treaties.  The  district court  also

announced  in its Memorandum and  Order of June  7, 1993 (but

not  in any  separate judgment),  that "the  only appropriate

remedy  is  to  rescind the  SANS  Treaties  as  a matter  of

equity."

          Defendants  complain  on  appeal   that  plaintiffs

                             -97-

should have been required  to prove, and could  only recover,

"benefit  of the  bargain"  damages.   Defendants argue  that

plaintiffs  in  fact suffered  no  damage  at all  as  "[t]he

results achieved under the SANS Treaties were poor, but  they

were   better   than   industry   average   results   . . . .

Plaintiffs'  experts,  who  utilized  individual  certificate

facultative  underwriting,  reluctantly  admitted  their  own

operations lost money and were closed down."   In defendants'

view,  the  losses  under  the  SANS  Treaties  were  due  to

"extremely  adverse market  conditions     low  premiums  and

unprecedented loss experiences."   As the judge commented, it

was "a disastrous  market."   Defendants go on  to point  out

that "[t]here was no evidence that brokerage-located business

resulted in larger losses than business obtained 'directly.'"

          The court, in  its opinion  excused the  plaintiffs

from establishing  damages  because, for  plaintiffs to  have

done so,

          it  would have  been necessary  to obtain
          the financial records of the major direct
          reinsurance     companies     . . . which
          financial  records  are confidential  and
          not accessible to third parties.

          We find no  legal error in the  court's decision to

furnish  relief  for fraud  based  on  cancelling plaintiffs'

reinsurance obligations under the  Treaties.  When an insurer

establishes that it was induced by fraud to issue policies of

insurance, cancellation of  the policy is a customary form of

                             -98-

relief.   See, e.g., Century Indem., 333 Mass. at 504-05, 131
                                               

N.E.2d  at 769.   To  the extent  that these  plaintiffs were

ceded shares in reinsurance  under Treaties they were induced

to  join,  and  continued   to  participate  in,  because  of

defendants' fraud, the district  court was authorized,  where

otherwise appropriate, to provide the remedy of retroactively

cancelling  the  applicable Treaties,  reimbursing plaintiffs

for  their   net  losses,  and  absolving   them  from  their

unfulfilled reinsurance obligations thereunder.

          In this opinion we  have reversed the fraud finding

based on the  "facultative" representations, but  have upheld

it  in respect  to reliance  on representations  in the  1979

Placing  Information  regarding  securing nontreaty  business

"directly"  rather  than  through  intermediaries.    Thus  a

cancellation remedy for fraud may still be appropriate  as to

reinsurance  retroceded to plaintiffs  which was  infected by

that  fraud.     However,   we  have  remanded   for  further

consideration  of   whether  the  statutes   of  limitations,

including that for fraud,  constitute a bar to the  claims of

any   or  all  plaintiffs.     We  have   also  remanded  for

consideration whether,  at least in some  cases, the original

fraud was dissipated, or its duration limited to a particular

year or years, by the receipt of knowledge of  the falsity of

the  earlier  representations  coupled  with  renewal  of the

Treaty  or other  conduct indicating acquiescence  or waiver.

                             -99-

We have further remanded for consideration of whether certain

of the plaintiffs are barred from relief for fraud because of

their failure to establish reliance.

          We accordingly  vacate all  relief  granted by  the

court and remand for further findings on what relief, if any,

is appropriate in light  of the other findings that  are made

upon remand.    If  there are  instances  where  recovery  is

appropriate for  breach of contract only,  rather than fraud,

the court should determine the proper measure of relief, and,

subject  to  our rulings  herein,  the  district court  shall

recalculate the proper award, if any  is due, on the basis of

its assessment of the law and facts.

IX.       Prejudgment Interest
                      Prejudgment Interest

          The  defendants  argue  that  the  district court's

order  rescinding  the  SANS  Treaties was  a  restitutionary

award, not an  award of damages.  Thus, they say, the court's

assessment of prejudgment interest at the rate  of 12 percent

set  by  Mass.  Gen. L.  ch.  231,      6B,  6C, and  6H  was

erroneous, because the rate of interest set by those statutes

is applicable only to awards of damages, not to rescissionary

awards.   They  argue  that the  plaintiffs  made an  express

election  of remedies,  choosing rescission  and restitution,

and  thus foregoing  their  option to  pursue  the remedy  of

contract  damages  and  interest   on  those  damages.    The

defendants contend that prejudgment interest should have been

                            -100-

applied at the  rate of 6  percent set by  Mass. Gen. L.  ch.

107,   3.

          In light of the fact that we are vacating the award

and remanding  this case  to  the district  court, where  any

judgment eventually  awarded to either party  may bear little

resemblance  to the judgment we vacate  today, we decline the

defendants' invitation to  consider this point at length.  We

find  it  of  interest, however,  that     6C  has been  held

applicable to a recovery based on an action for money paid by

mistake, Commercial Union, 412 Mass. at 555-56, 591 N.E.2d at
                                     

171-72, a recovery which  seemingly bears more resemblance to

restitution than to money damages.

X.        Conclusion
                      Conclusion

          Appeal No. 93-2339
                                        

          We  sustain  the   district  court's  findings  and

rulings on  certain matters;  reverse others either  as being

clearly erroneous  or legally incorrect;  and identify  still

others that require the  district court to make findings  and

rulings now absent.    We, therefore, vacate in  its entirety

the  judgment  awarding  a  total of  $38,118,940.07  to  the

plaintiffs and remand with directions that the district court

hold further proceedings and take such further actions as are

necessary to  comply with this  opinion.35  We  summarize our

                    
                                

35.  As  a  matter of  consistency,  we  likewise vacate  the
court's  other directives  not  incorporated in  its judgment
purporting to afford relief, such as its equitable rescission

                            -101-

specific dispositions as follows:

          (1)  We  reverse  as  being  clearly erroneous  the

district court's  finding of fraud  premised upon defendants'

promise to cede "facultative" reinsurance.

          (2)  We   sustain  the  court's  finding  that  the

defendants made misrepresentations in the Placing Information

to the effect,  inter alia, that  they would obtain  business
                                      

directly from primary insurers.  However, the  claim of fraud

based on  this finding must be given further consideration on

remand  in   light  of   our  direction  to   reconsider  the

defendants' defense  based on the statute  of limitations; to

revisit  the  reliance  element  and  deny  recovery  to  any

plaintiff  unable  to satisfy  its  burden of  proof  on this

point; and to  reconsider the possible effects  of any notice

and knowledge  obtained by any  of the plaintiffs  during the

lives of the SANS Treaties and determine whether these defeat

or limit the duration of any plaintiffs' continuing rights of

recovery in fraud.

          (3)  We  reverse  the district  court's  finding of

breach of  contract based  upon the  supposed non-facultative

character of the retroceded reinsurance.  We also reverse the

district  court's finding  of breach  of contract  based upon

failure to "produce" the  retroceded reinsurance.  We reverse

                    
                                

of the SANS  Treaties.   Such orders should  be revisited  on
remand and reissued, modified, or not as the court determines
in light of this opinion and its own findings and rulings.

                            -102-

the district court's breach of contract  finding based on the

promise that Graham Watson would "underwrite"  the retroceded

reinsurance, except we leave open  for the court to consider,

on  remand,  whether  the  underwriting might  have  been  so

entirely inadequate as to violate  that provision.  We affirm

the district court's finding of breach of contract based upon

the  violation of  Warranty No.  2 in  the slips,  subject to

further findings on the effect of the  statute of limitations

and any other bar to recovery.

          (4)  We  direct  the  court to  consider  and  make

specific  findings   and  rulings  as  to   the  statutes  of

limitations defenses and to  find the dates that each  of the

relevant statutes began to run as to each of the plaintiffs.

          (5) We  direct the court to  recalculate the proper

amount  of relief and prejudgment interest  to the extent its

other  determinations  on  remand  are  consistent  with  the

awarding of relief to any of the plaintiffs.  We have upheld,

as a  remedy, the cancellation of any reinsurance infected by

fraudulent representations  and leave to the  court on remand

the  determination of any  other theories of  relief that may

become appropriate.

          (6) We reverse the court's allowance of plaintiffs'

claims under Mass. Gen. L.  ch. 93A,   2 insofar as  they are

based on fraud in the inducement.  However, we remand for the

district  court's further  consideration  whether  any  other

                            -103-

conduct,  as  mentioned  in  this opinion,  might  support  a

finding of liability under that statute.

          Appeal No. 93-2338
                                        

          We  affirm  the   district  court's  dismissal   of

plaintiffs' claims under the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C.    1961-1968.

          So ordered.   Each side  to bear its  own costs  on
                                                                         

appeal.
                   

                            -104-