Executive Life’s Parent Files for Reorganization : Insurance: The plan is expected to provide ‘substantial benefits’ for policyholders of the failed company.

First Executive Corp. and its creditors committee have filed a joint reorganization plan that state insurance officials say should provide “substantial benefits” to policyholders of First Executive’s failed Executive Life Insurance Co. unit.

The plan, which must be approved by both creditors and the U.S. Bankruptcy Court in Los Angeles, would essentially transfer to Executive Life’s policyholders certain of the parent company’s assets and its legal claims against former officers and directors of First Executive and their associates.

First Executive filed for Chapter 11 bankruptcy protection after the April, 1991, collapse of Executive Life.

The collapse prompted a slew of lawsuits seeking billions of dollars in damages against Fred Carr, former head of First Executive; junk bond trader Michael Milken, now in prison for securities fraud; accounting firm Deloitte & Touche; insurance rating agencies, and numerous others.

Policyholders’ losses in the debacle have been estimated at $3 billion.

The reorganization plan announced Tuesday would create a trust for the policyholders--to be administered by California Insurance Commissioner John Garamendi--that would immediately receive about $30 million in assets, mostly real estate, from First Executive.

Money recovered from the lawsuits would also be placed in the trust for distribution to policyholders.

Also under the reorganization, structured settlement annuitants would receive a 44% stake in a new, slimmed-down First Executive, whose chief assets would be two small insurance subsidiaries, Lincoln Liberty and First Delaware.

The structured settlement annuitants are mainly people who suffered severe injuries and received large insurance settlements in the form of Executive Life annuities. When Executive Life collapsed and was seized by Garamendi’s office in April, 1991, the payouts to such annuitants were sharply reduced, causing extreme hardship for many.

Stephen L. Hubbard, Garamendi’s attorney in negotiations with First Executive creditors, said it is impossible to estimate the amount that policyholders will eventually recover, since so much depends on the outcome of the lawsuits. However, he said the proposed reorganization plan provides “substantial benefits” to policyholders, both monetary and non-monetary.

Garamendi, in a press release, called the reorganization plan “one more step in holding those responsible for the downfall of (Executive Life) accountable and to enhance the ultimate return to . . . policyholders.”

In February, a Los Angeles Superior Court judge approved the $3.55-billion purchase of Executive Life by French-based Altus Finance.