Executive Life Pact Proposed by Garamendi : Insurance: He seeks a settlement that would sweeten the deal for investors. But some lawyers in the case remain skeptical.
Prompted by a recent setback in the California Supreme Court, Insurance Commissioner John Garamendi is trying to negotiate a settlement of the massive Executive Life Insurance Co. case, which has been in litigation since Garamendi seized the company in April, 1991.
Garamendi on Wednesday afternoon announced a proposed settlement that could sweeten the pot for policyholders, annuitants and other investors, including municipal bondholders whose securities were backed by guaranteed investment contracts issued by Executive Life.
However, lawyers for the bondholders--known as Muni-GIC holders--were skeptical about the proposal, saying that they had seen no details and that the outlines sketched in Garamendi’s announcement failed to address key questions.
The proposal involves a concession by the French investment group that won the contract to rehabilitate Executive Life. The group, led by Mutuelle Assurance Artisanale de France, would forgo any gains on certain Executive Life assets it might have realized between the time it was named winning bidder, in the fall of 1991, and the day the rehabilitation plan finally goes through.
Some opponents of Garamendi’s original rehabilitation plan have charged that it would have handed the French a windfall of up to $600 million. Under the proposal announced Wednesday, any such gain would go to Executive Life’s policyholders and other investors.
“By agreeing to contribute to policyholders any increase in value of the base assets beyond the winning bid of $1.489 billion, (the French group) has taken a major step toward helping us settle this case,” Garamendi said in his statement Wednesday.
The Muni-GIC holders had sued Garamendi over his initial plan for rehabilitating Executive Life because he wanted to give them lower status in any eventual recovery than the 360,000 insurance policyholders and 300,000 pensioners whose income is guaranteed by Executive Life.
Garamendi stuck to his position through two court reversals, but on Jan. 29, the state Supreme Court ordered him to elevate the Muni-GIC investors to equal status.
After the ruling, there was widespread speculation that other legal issues might also be decided in favor of the Muni-GIC holders. The speculation has caused a rally among the municipal issues that would be affected.
“The speculation grew to a point where we felt it was necessary to go forward with this,” Richard D. Baum, chief deputy commissioner, said Wednesday.
But a settlement may still be a long way off, judging by the reaction of some representatives of the Muni-GIC holders.
Garamendi is “throwing a few crumbs our way,” said attorney Christine Franklin of the Los Angeles firm of Thelen, Marrin, Johnson & Bridges, which represents Texas Commerce Bank of El Paso, a trustee for some of the Muni-GIC holders.
Robert L. Wallan of the firm of Pillsbury Madison & Sutro, which represents the seven other banks that are Muni-GIC trustees, said his clients believe that the plan still discriminates against them and that the proposal doesn’t address that concern.
