The pot of gold for Enron's frustrated creditors could be the consortium of insurance companies that provided at least $350 million in potential coverage to Enron's officers and directors.

Right now, a battle is raging in the Enron bankruptcy proceeding over how to pursue legal action against the providers of directors and officers, or "D&O," insurance to both former and current Enron officials. The dispute focuses on whether lawyers for Enron's creditors or a special court-appointed examiner should pursue the claim.

But the court papers filed in the bankruptcy case make it clear that it's ultimately a matter of when, not if, a lawsuit is filed against the D&O insurers such as Bermuda-based Associated Electric Gas & Insurance; Lloyd's of London; a St. Paul Cos. ( SPC) unit; and Executive Liability Underwriter, a division of Bermuda-based XL Capital ( XL).

"Wrongful Acts" Covered

Enron's primary D&O carrier, according to court papers, is Associated Electric. The 11 other insurers provided excess or umbrella coverage -- insurance policies that kick in when a damage award reaches a specified amount.

A lawsuit by Enron's creditors, which technically would be filed against the company's directors and officers, would seem to make sense.

That's not just because a good legal argument can be made that Enron's board exercised poor judgment in approving the company's elaborate strategy of moving billions of dollars in debt and ailing assets into a myriad of off balance sheet partnerships. So-called D&O policies come into play when a corporation's top brass is sued over bad decisions that they made on a company's behalf. The policy underwritten by Associated Electric covers "wrongful acts."

But the insurers may be one of the last best places for the creditors to turn for money.

Won't Pay Off as Much

Just this week, Andersen Worldwide, the parent company of Arthur Andersen -- Enron's disgraced auditor -- agreed to pay about $60 million to settle claims brought by some of Enron's investors, employees and creditors in the bankruptcy proceeding.

The money being forked over by Andersen is not an insignificant sum. But it's rather paltry when you consider that as of July, all the lawyers, accountants and other professionals working on the Enron bankruptcy case had submitted bills seeking more than $70 million in fees and expenses. And those bills are paid out of money that's collected in the bankruptcy proceeding.

Similarly, going after Enron's executives, especially those that may have illegally profited from some of the company's off balance sheet wheeling and dealing, may not prove to be such a bonanza.

Former Enron executive Michael Kopper, who pleaded guilty to fraud and conspiracy charges, has agreed to forfeit some $12 million in ill-gotten gains to the Securities and Exchange Commission and federal prosecutors. Again, that's pocket change compared with the estimated $13 billion in claims that creditors have against the bankrupt energy trader.

Little Money Left

Even the dozens of off balance sheet entities Enron used to hide its debt and inflate its corporate profits may not be worth much in the end. Sources say the infamous LJM2 partnership, a $394 million venture set up by Andrew Fastow, Enron's former chief financial officer, has little money left in it.

Indeed, outside of the Wall Street banks and brokerages that played a role in Enron's off balance sheet partnerships, the insurers may represent the single deepest pocket for Enron's creditors to pursue.

The irony is that many of Enron's creditors -- J.P. Morgan Chase ( JPM), Citigroup ( C), Merrill Lynch ( MER) and Credit Suisse First Boston -- are some of the very same banks and brokers that either financed or invested in the off balance sheet deals.

A lawsuit by the creditors also would put them at odds with Enron's shareholders, who already named Enron's directors and officers as defendants in a massive class-action suit.

It's worth noting, however, that any lawsuit against the insurers is no slam-dunk. D&O policies traditionally don't cover acts of corporate fraud.

That sets up another twist: It could be that the more criminal wrongdoing the feds find at Enron, the harder it may be for Enron's creditors and shareholders to collect from the insurers.

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