WASHINGTON (Reuters) - After years of high-stakes legal wrangling, a lawsuit stemming from the gruesome deaths of four U.S. contractors in Iraq is moving behind closed doors in an action seen as an important precedent for the booming private security industry.

An Iraqi man looks at a vehicle on fire after an attack that killed four armed contractors in the restive town of Falluja March 31, 2004. After years of high-stakes legal wrangling, a lawsuit stemming from the gruesome deaths of four U.S. contractors in Iraq is moving behind closed doors in an action seen as an important precedent for the booming private security industry. REUTERS/Salman Amer

The suit, for wrongful death and fraud, was filed in January 2005 against Blackwater Security Consulting, one of scores of companies now fielding close to 130,000 civilians who work alongside the U.S. military in Iraq. Generally their contracts stipulate the contractors assume all risks -- injury, death, disability -- and waive their right to sue.

The risks are considerable: the latest government figures say 916 civilian contractors have been killed from the beginning of the war in Iraq in March, 2003 to April 30, 2007.

Despite the risks, security companies say there is no shortage of applicants attracted by high pay and a taste for adventure.

Contractors -- Americans, Iraqis and nationals from more than 30 other countries -- perform jobs from guarding senior U.S. officials to translating, cooking meals, driving trucks, cleaning toilets and servicing weapons systems and computers.

Contract language is explicit and in the case of Blackwater, it releases the company from “any liability whatsoever” even if it is “the result of negligence, gross negligence, omissions or failure to guard or warn against dangerous conditions.”

The suit was brought by the families of four civilian contractors shot in March 2004 by Iraqi insurgents, who burned their bodies and hung the charred remains from a bridge across the Euphrates river in the city of Falluja.

Televised images of the scene, with jubilant Iraqis shaking their fists in triumph, shocked the U.S. and prompted an all-out military assault on the city.

In an unusual decision last week, James Fox, a senior district court judge in North Carolina, where Blackwater is based, ordered the case out of the courts and into arbitration.

SECRET PROCESS

Lawyers for both sides declined comment on the move but Blackwater spokeswoman Anne Tyrrell confirmed that hearings would begin soon under the rules of the American Arbitration Association, a private group whose proceedings are confidential and its rulings binding.

“This is a very important decision,” said Jeffrey Addicott, a retired Special Forces lawyer and director of the Center for Terrorism Law at St. Mary’s University in San Antonio. “It is a recognition that the contract is iron-clad and that its terms absolve the company of liability. In future cases, this will be cited as a precedent.”

But some legal experts see the removal of the Fallujah case from the judicial process as an ominous development.

“This may be a victory for the Blackwater legal team but it is a defeat for the principle of transparency,” said Eugene Fidell, an expert on military law and president of the non-profit National Institute of Military Justice.

“This means that the shadow army (of contractors) will slip even further into the shadows.”

Both sides have engaged high-level legal teams.

When lawyers for the families of the four contractors -- Stephen (Scott) Helveston, Mike Teague, Jerko Zovko and Wesley Batalona -- first brought the case, they said it was meant to send a message to all contractor companies in Iraq.

The suit alleged that Blackwater broke explicit terms of its contract with the men by sending them to escort a food convoy in unarmored cars, without heavy machine guns, proper briefings, advance notice or pre-mission reconnaissance, in teams that were understaffed and lacked even a map.

Since the case began making its slow way through the legal system and eventually to arbitration, the number of contractors working alongside the U.S. military in Iraq has increased by an estimated 30,000 and some experts say the rapid growth has tempted companies to cut corners.

“Standards have been slipping, not for all but for some, in training and the quality of staff,” said Robert Young Pelton, author of the book “Licensed to Kill,” on the private security industry drawn from three years of travel through conflict zones.