Executive Life Policyholders’ Share Up in Air : Bailout: Certain conditions must be met by the bidder for the insurer. The outcome of a lawsuit will also influence who gets what.

The fate of Executive Life Insurance Co.’s policyholders is still far from certain, Los Angeles Superior Court Judge Kurt Lewin said at a hearing Friday.

Although state Insurance Commissioner John Garamendi recommended Thursday that an insurance industry plan to rehabilitate the company be accepted, the industry--represented by the National Assn. of Life and Health Insurance Guaranty Assns. (NOLHGA)--must satisfy several requirements before the judge approves the deal.

Additionally, a decision in a related lawsuit will have a significant impact on who gets paid and how much they receive, the judge said.

Lewin is hearing arguments in a that lawsuit, filed against the insurance commissioner by holders of $1.85 billion in municipal bonds backed by guaranteed investment contracts issued by Executive Life. Holders of these “muni-GICs” are considered general creditors of the company rather than policyholders. That reduces their ability to recoup their funds, and industry experts estimate that they will be paid less than 30 cents on the dollar, while policyholders have been promised 89 cents on the dollar under the NOLHGA bid recommended by Garamendi.

The muni-GIC holders argue that they should be treated the same as policyholders. If they are, everybody else will receive somewhat less. And the NOLHGA bid may have to be revised or replaced, attorneys noted.

If, on the other hand, the muni-GIC holders are not policyholders, questions may arise about the status of holders of an additional $1.1 billion in guaranteed investment contracts held by company pension plans, Lewin said. These pension-GICs are considered insurance policies under the various bids for Executive Life, entitled to the full payouts and additional guaranty fund enhancements for policies under certain levels. If the pension-GICs are reclassified as general obligations of the company, other policyholders might receive 100% payments, Lewin noted.

Lewin is expected to make a decision about the muni-GIC holders late next week. NOLHGA has until Nov. 4 to answer all the legal questions that would allow its bid to go forward.

And two other groups, led by investment bankers Hellman & Friedman in San Francisco and Altus Finance of New York, have until Nov. 11 to raise their offers before a transaction is actually approved Nov. 18, according to a schedule set up at the hearing.