Surety insurers should not be seduced by high premiums into underwriting financial guarantees, according to a Standard & Poor's report, which describes a lawsuit brought by J.P. Morgan Chase & Co. against 11 insurance companies as a "wakeup call" that is symptomatic of a wider industry problem."As professionals, you're supposed to look a gift horse in the mouth occasionally," states Tom Upton, a director with S&P's insurance ratings group.

The surety coverage at issue in the $1 billion court case purportedly guaranteed gas deliveries from Enron Corp. to Mahonia Ltd., an energy-trading business of J.P. Morgan Chase & Co., but the insurers contend the underlying delivery contracts were masking loans-that Enron received advance payment for gas which it never intended to deliver because, through a complex circular transaction, it was both the shipper and receiver of the same quantity of gas at around the same time.

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