Court Opinion

ID: 2963502
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:11:02.861162+00
Date Added: 2024-06-11T11:42:42.219173
License: Public Domain

USCA1 Opinion

	

          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-