City Employees in Carson Learn Their Insurer Is Not Solvent : Government: The state has taken over Pacific Standard Life Insurance Co. However, worried employees are being reassured that they will lose no money.

Carson employees who chose Pacific Standard Life Insurance Co. for life insurance and retirement savings policies have been notified that the state Department of Insurance has taken over the Davis-based company because it is insolvent.

The state takeover, which occurred Dec. 11, followed a Nov. 28 state insurance department order to Pacific Standard that it quit conducting business. The move affects about 170 city employees who together have paid about $313,000 in premiums to Pacific Standard in the last 18 months.

“I’m one of them,” said Nancy Severtson, acting accountant and treasurer for Local 809 of the American Federation of State, County and Municipal Employees. “I don’t know what’s happening,” she said Wednesday.

State and city officials attempted to reassure city employees.

Ed Middleton, the person now running Pacific Standard for the state Insurance Department, said in a telephone interview Wednesday that claims and benefits will be paid.

But, he added, no one with a Pacific Standard policy will be able to claim its cash value for six months, although they will have to continue to pay premiums.

Mark Johnson, the city’s financial consultant, said: “As far as we know at this point, the policies are still in effect. . . . The state indicates that they are going to assign the policies to different companies. It doesn’t appear that the individual policies are threatened.”

Middleton said the Insurance Department conducted an examination this fall of Pacific Standard after learning of the financial troubles of Dallas-based Southmark Corp., a large diversified financial services and real estate company that acquired Pacific Standard in 1986.

“The examination was scheduled because we knew the stock was owned by Southmark, and we knew Southmark had problems,” he said.

In July, Southmark became one of the largest companies ever to seek bankruptcy protection from its creditors.

Middleton said the state’s examination found that Pacific Standard had recently bought second mortgages and junk bonds, which violated state regulations for insurance company investments.

“The relationship with Southmark has created problems for” Pacific Standard, he said. “Mostly, it is a question of investment policy that doesn’t meet the requirements of the insurance code. The assets have value, but they are not acceptable as a statutory reserve.”

Middleton said he did not know whether Southmark had saddled Pacific Standard with risky assets after it acquired the firm. A similar allegation was made against Southmark in a lawsuit brought in connection with another California company acquired by Southmark.

In September, 1988, a San Diego County jury awarded $130.9 million to John and Lynne Riddle of Rancho Santa Fe. The couple’s lawsuit accused Southmark of buying their resort time-share exchange agency in 1983 and then using it as “a septic tank” for the bad debts of other Southmark operations. The Riddles, who were to be paid out of the profits generated by their former business, said that the effect of the Southmark policy was to reduce the profits to nil.

The Superior Court reduced the award to $23 million, and Southmark appealed. The case was settled, a lawyer for the Riddles said Wednesday. Southmark could not be reached Wednesday for comment.

Middleton could not say whether Southmark had used a similar tactic after acquiring Pacific Standard. “I haven’t been here long enough to know exactly how it happened, but Southmark did have an influence on the investment policy,” he said. “The investment policy wasn’t too good.”

Middleton’s role at Pacific Standard began after the Yolo County Superior Court appointed Insurance Commissioner Roxanne Gillespie as conservator for the insurance firm Dec. 11. A financial examination presented to the court said the company’s liabilities exceeded its assets by $41 million. Middleton was named manager for the state Insurance Department.

“The conservation order is in place to provide a means to protect the assets and to provide a controlled means by which we can rehabilitate the company,” Middleton said.

He added that he is considering the sale of some of the assets of Pacific Standard and also the sale of the entire firm.

After “a few months, if it doesn’t work out, . . . we would ask the court for an order to liquidate the company,” he said.

Johnson said he and the newly appointed finance director, Lorraine Oten, “need to confer with the city attorney and the city administrator” about how Pacific Standard’s troubles will affect Carson employees.

About half of Carson’s 350 full-time employees elected Pacific Standard when choosing life insurance and retirement savings plans.

In Carson, Pacific Standard became controversial two years ago after it was learned that then-City Administrator John Dangleis had steered city insurance business to the firm without telling the City Council that he was affiliated with it as an insurance agent and that he was a friend and business associate of Peter Cobo, an insurance agent for Pacific Standard.

Dangleis was ousted in May, 1987, after the council learned that he had not disclosed $1,200 in income from Pacific Standard that he continued to receive after becoming Carson city administrator in 1984. Dangleis said the income stemmed from policies written before he was employed by Carson and denied receiving any commission for Pacific Standard’s policies with city employees.

But after he left, the city continued to offer Pacific Standard life insurance and deferred compensation policies to its employees, and Cobo continued to act as agent for Pacific Standard in connection with the policies.

On Dec. 1, Cobo wrote city officials to inform them that the state Department of Insurance had ordered Pacific Standard to stop doing business.