California insurance regulators said Thursday that they want to make it easier for financially strapped policyholders to get access to funds invested in the failed Executive Life Insurance Co.
In papers filed in Los Angeles Superior Court, Insurance Commissioner John Garamendi asked for court approval to ease "hardship rules," which bar the company's policyholders from withdrawing money from the troubled insurer except under the most dire circumstances.
Dozens of these policyholders had testified at a recent court hearing about medical, financial and other hardships they had suffered because of Executive Life's seizure and a subsequent ban on policy loans and surrenders.
One woman, who said regular payments from Executive Life helped her support her severely retarded son, told Superior Court Judge Kurt J. Lewin that without these funds she would have to put her son in a state institution "where he will surely die."
Despite the severity of their personal problems, these policyholders maintained that the current set of hardship rules blocked them from wresting funds away from the failed insurer.
Under hardship rules established shortly after Executive Life was seized, policyholders needed to meet two of four criteria to withdraw even a portion of their funds: They must be terminally ill or permanently disabled; have incurred substantial medical expenses not covered by insurance; have financial difficulties so severe that they cannot pay for essential life-support needs, or be threatened with imminent removal from a medical-care facility.
On Thursday, Garamendi proposed a fifth condition be added to cover "emergencies of an unusual nature." The wording was meant to be ambiguous enough to allow the court substantial latitude in granting policyholders with troubles access to at least a portion of their funds.
The most policyholders can now get, even in emergency circumstances, is $30,000. However, Garamendi's proposal also seeks to modify that restriction, giving the court the ability to release more money when appropriate.
The Department of Insurance says it has received about 200 emergency applications since Executive Life failed more than two months ago, and it has just started to send out checks. About 100 of these applications have been approved in the past few days, and the checks are in the mail, insurance department spokesman Bill Schulz said.
The remaining applications are expected to be processed next week, he added.
The new proposals, which could be approved as soon as next week, may spur policyholders to file additional applications. However, Schulz stressed that only those with serious financial problems will be allowed to withdraw their funds.
In another development, state regulators also named Carl A. Blomquist special deputy insurance commissioner with responsibility for day-to-day oversight of Executive Life's operations.
Blomquist is chief executive of the Cooperative of American Physicians and their Mutual Protection Trust, but he has agreed to take a leave of absence from this position while he assumes managerial responsibilities at the failed insurer.
Meanwhile, an arbitration panel revealed Thursday that it would force the investment house Merrill Lynch, Pierce, Fenner & Smith Inc. to reimburse an Illinois bank for more than $195,000 in losses, fees and costs pertaining to a $250,000 investment in municipal bonds backed by Executive Life guaranteed investment contracts (GICs).
The Municipal Securities Rulemaking Board arbitration panel determined that a Merrill Lynch salesman misrepresented some aspects of the investment, leaving its customer--identified only as an Illinois bank--believing that the investment was more secure than it really was.
The customer apparently believed that municipal bonds issued by four different agencies in Louisiana and Texas were insured by bond insurance firms. Instead, these bonds were backed by GICs issued by Executive Life.
A Merrill Lynch spokesman said the misrepresentation was a misunderstanding about the difference between GICs--contracts issued by insurers who agree to repay a fixed amount, usually at a set interest rate, in the future--and traditional insurance.