Customers of Executive Life Fear Big Losses
A federal court hearing is scheduled Monday in the long-running dispute over the failed Executive Life Insurance Co., amid reports of a possible settlement that policyholders say may cost them billions of dollars.
Lawyers for French bank Credit Lyonnais and a related company are set to ask a federal judge in Los Angeles to dismiss a civil fraud case brought by state insurance commissioner John Garamendi. The insurer, with $10 billion in assets, was seized in April 1991 by Garamendi during his first term as commissioner because of its shaky financial condition.
Credit Lyonnais believes the case should be dropped because the state received full market value for Executive Life’s insurance business and “junk bond” portfolio when Garamendisold it in August 1991.
Federal and state authorities contend that Credit Lyonnais and a French investor group conspired to fraudulently acquire the Executive Life bonds in violation of U.S. and California laws. Garamendi’s suit seeks unspecified damages for the improper purchase of Executive Life’s assets.
Monday’s hearing will take place as reports continue to circulate of settlement discussions among the French companies, Garamendi and the state attorney general’s office.
A civil trial is expected to begin in February if the case is still active.
Meanwhile, a group of Executive Life policyholders, hurt financially by the insurer’s collapse, fears Garamendi may leave billions of dollars in damages on the table by not forcefully attempting to recover what it contends is at least $4 billion in losses from the underpriced sale of the bond portfolio.
“Policyholder recoveries are at risk because Insurance Commissioner John Garamendi has not countered in court the defendants’ claim that there were no policyholder losses,” said Maureen Marr, a spokeswoman for the Executive Life Action Network. “The commissioner needs to respond on the record about these losses.”
But Norman Williams, a spokesman for the state Department of Insurance, said Garamendi was “committed to bringing fair restitution to the victims of this scandal.”
The possibility of settlement talks follow last January’s guilty plea in federal court by Credit Lyonnais and other firms on charges they misled U.S. regulators when they took over Executive Life’s insurance business and bond portfolio.
In that settlement, Credit Lyonnais, a French government agency that controlled the bank and other parties paid $772 million in fines and restitution to end the five-year federal probe.
Nevertheless, Executive Life Action Network contends that former policyholders were denied their share of profits from Credit Lyonnais’ fraudulent acquisition of the insurer’s junk bonds. Previously, Garamendi has said that 92% of Executive Life’s policyholders already have been made whole.
However, Vince Watson, whose daughter is owed a life-long settlement from Executive Life to resolve a medical malpractice case in Arizona, said his family had been underpaid by more than $1.5 million since 1992.
