The observed equilibrium interconversion between open ethylene phosphites and bicyclic spirophosphoranes is recognized as the result of a new insertion reaction of phosphite P(III) into the labile H-O bond of the hydroxyethyl ester, a process more typical to electron deficient species as carbenes or nitrenes, and akin to oxidative additions of transition metals. Energy relationships between species along the reaction path are studied by MO RHF, MP2(full), and MP4SDTQ, as well as DFT calculations, and usually predict 2-hydroxyethyl ethylene phosphites 1 more stable than strained tetraoxo-[10-P-5]-spirophosphoranes 2, contrary to known experiments. The results of DFT calculations could be referred to underestimation of nondynamic electron correlation in the unfavorable four-electron three-center axial fragment of spirophosphoranes, and thereby spurious prediction of their lower stability. This interpretation of the DFT results is corroborated by CAS SCF vs. MC-QDPT2 calculations. (C) 2003 Elsevier B.V. All rights reserved.