Fight Begins to Save Bid for Exec Life : Insurance: A court ruling has shaken up plans for a takeover by a group of investors that is based in France.

The French investment group chosen by California Insurance Commissioner John Garamendi to take over Executive Life Insurance Co. scrambled Tuesday to hold its deal together after a court ruling that set aside the acquisition plan.

Fueled by speculation that an improved offer will emerge for Executive Life--either from the French group or another potential buyer--bonds backed by the Los Angeles insurance company climbed about 10% in Wall Street trading.

Plans for an Executive Life acquisition by a group led by Mutuelle Assurance Artisanale de France were shaken Monday by a state appellate court decision.

The 2nd District Court of Appeal in Los Angeles found that the terms of the deal approved in 1991 by Garamendi unfairly penalize big investors holding what are known as municipal guaranteed investment contracts from Executive Life.

These big investors--known as muni-GIC holders--have argued that the Garamendi plan discriminated against them in favor of the 360,000 insurance policyholders and 300,000 pensioners whose income is guaranteed by Executive Life. The muni-GIC holders have also contended that the deal could unfairly enable the French group to reap a windfall gain of as much as $900 million.

While lawyers for muni-GIC holders said Monday’s court decision could unravel the Garamendi-approved acquisition deal, spokesmen for the French group and the state Insurance Department said the agreement is still alive.

The court ruling “can be dealt with with a series of modifications to the existing plan,” said a representative of the French group.

Added Bill Schulz, an insurance department spokesman: “We do not see the concerns of the court as insurmountable.”

When Executive Life was seized by California regulators in April, 1991, it marked one of the nation’s biggest insurance company failures. The company was crippled by the plunging junk bond market and a surge of worried customers who wanted to cash in their insurance policies.

Soon after the French investment group won a state auction in late 1991 to take over Executive Life, the deal became enmeshed in court challenges brought by the muni-GIC holders.

Those persistent legal challenges, along with the court victory by the muni-GIC holders on Monday, are widely expected to prompt, at the least, a restructuring of the current acquisition deal.

In fact, in an apparent move to mollify muni-GIC holders, the French group said late Tuesday that it is committed to sweetening its offer to them and regular policyholders.

A spokesman said the French group has accepted part of a Garamendi settlement proposal requiring the group to return to bondholders and regular policyholders any gains in the securities that make up its “base assets.”

Previously, the value of the base assets was fixed at nearly $1.49 billion. But muni-GIC holders have argued that their value has risen substantially since Executive Life was seized by the state and that the appreciation should be included in the payout to them and regular policyholders.

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Still, the change in dealing with the base assets might not be enough to win over the muni-GIC holders. “It’s one of those day-late, dollar-short proposals,” said Gary Fontana, a lawyer for one of the muni-GIC holders.

Maureen Marr, coordinator of a group of policyholders known as Action Network for Victims of Executive Life, expressed mixed feelings about the recent developments. She said the good news is that regular policyholders now stand to get more than the 72 cents on the dollar they were to receive under the Garamendi plan.

On the other hand, Marr said, the case appears likely to remain tied up in court for a long time, so policyholders won’t be able to get their hands on their money anytime soon.