Exec Life Jurors to Focus on Damages

Jurors will return to federal court in Los Angeles today to weigh damages in a California regulator’s fraud lawsuit against French investors who bought billions of dollars of bonds from the portfolio of failed Executive Life Insurance Co.

Testimony, which is expected to last no more than one week, will focus on whether state Insurance Commissioner John Garamendi can collect compensatory and punitive damages.

In May, the jury found that Artemis, a Paris-based holding company, conspired with banking giant Credit Lyonnais and other French investors to defraud California regulators. The jury cleared billionaire Francoise Pinault, who then controlled Artemis, of wrongdoing. Credit Lyonnais and other French defendants settled their part of the case in February for $600 million.

Garamendi seized the ailing Executive Life in 1991 and claimed at the time that the move protected the assets of 92% of the company’s policyholders.

Although Garamendi had sought more than $2 billion in damages, any award by the jury could be closer to $75 million, based on court documents. In an order issued June 10, U.S. District Judge A. Howard Matz pointed to a $75-million payment by the estate of Executive Life to its successor, Aurora National Life Assurance Co., as evidence of “harm suffered by the insurance commissioner” in the wake of his approval of the French investors’ takeover of Executive Life’s insurance business.

In the same order, Matz dismissed Garamendi’s principle argument -- that he would have sold the Executive Life bond portfolio to another bidder, the National Organization of Life and Health Guaranty Assns., had he known that Credit Lyonnais and other French buyers used a secret “fronting” agreement involving intermediaries.

The judge termed Garamendi’s rationale “devoid of credibility” and told him not to claim damages based on the argument that he would have sold the bonds to the guaranty associations, an insurance industry group that pays claims on failed insurers such as Executive Life.

Garamendi, although frustrated by Matz’s order, said he would argue in court that the fraud harmed Executive Life and some of its policyholders. “The commissioner intends to continue to work to recover as much of the ill-gotten gains as possible and return them to policyholders,” a spokesman said.

However, activists working on behalf of Executive Life’s 330,000 policyholders have argued throughout the trial that Garamendi has appeared more worried about recovering funds for the guaranty associations than in compensating the more than $4 billion in losses suffered by owners of annuities sold by Executive Life -- including accident victims who counted on monthly payments they received in lawsuit settlements and awards.

Maureen Marr, a spokeswoman for the Executive Life Action Network, said Matz had the authority to order restitution for such losses, if Garamendi “is forthright about the true consequences of Artemis’ conspiracy and fraud.”