Exec Life Jurors Award Damages

A Los Angeles jury Thursday awarded $700 million in punitive damages against a French company that fraudulently acquired the assets of the collapsed Executive Life Insurance Co. more than a decade ago.

California Insurance Commissioner John Garamendi hailed the finding in U.S. District Court as “a proper and fitting” victory for some of the approximately 350,000 policyholders who lost billions of dollars in the 1991 seizure of the state’s then-largest life insurer. Garamendi was seeking more than $1.7 billion in damages and interest from Artemis for its role in the Executive Life failure.

But James Clark, attorney for defendant Artemis, the Paris-based holding company of French billionaire Francois Pinault, called the judgment a “legal curiosity” and predicted that the $700-million award wouldn’t stand because the jury failed to assess any compensatory damages.

Legal experts agreed that Garamendi was unlikely to collect any of the $700 million in punitive damages. Based on rulings by both the U.S. Supreme Court and the California Supreme Court, they said, compensatory damages generally must be awarded if punitive damages are to be assessed. Compensatory damages are meant to repay an injured party for actual losses, while punitive damages are meant to punish the defendant for wrongdoing.

“One of the elements for a punitive damages award is that there be actual damages for the plaintiff,” said Robert Fellmeth, a law professor at the Center for Public Interest Law at the University of San Diego. “I think this is a problem for the plaintiff.”

The U.S. Supreme Court in a 2003 decision ruled that punitive damages must be “reasonable and proportionate” to actual damages, said John Sullivan, president of the Civil Justice Assn. of California, a legal reform organization. “A ratio of zero is still zero,” he said.

However, Gary L. Fontana, a lawyer for Garamendi, cited a 2005 California Supreme Court opinion that he said affirmed a jury’s ability to award punitive damages based solely on a defendant’s proven ill-gotten gains.

The jury award, which followed six days of testimony and a day and a half of deliberations, is the latest twist in the 1999 lawsuit filed by the Department of Insurance in the wake of Executive Life’s collapse. The suit alleged that Credit Lyonnais, then controlled by the French government, conspired with other investors to acquire Executive Life’s multibillion-dollar portfolio of high-risk corporate “junk” bonds from Garamendi, who had taken control of the company to protect policyholders.

Garamendi later sold the bonds and the insurance assets to Credit Lyonnais and allied investors, not realizing that they’d created a series of intermediary companies in violation of a state law that prohibits foreign government entities from owning insurance firms in California.

In May, the same jury, ending an eight-week first phase of the trial, issued a split decision, finding Artemis guilty of fraud but clearing co-defendant Pinault of wrongdoing. Through Artemis, the 68-year-old Pinault, one of the richest men in France, controls luxury goods maker Gucci Group and fashion house Yves Saint Laurent.

In a conference call Thursday, Garamendi said, “We have said all along that wrongdoers should not profit from fraud. Today the jury agreed with us.”

He noted that the $700-million award, combined with about $600 million in previous settlements, “would be a great help to policyholders as they attempt to recover from the financial damages caused by this fraud.”

However, representatives of Executive Life policyholders, many of whom lost hundreds of thousands of dollars from promised annuities when the insurer collapsed, said they were disappointed in Garamendi’s handling of the case.

“We are examining our options for finally holding Commissioner Garamendi responsible for 14 years of lies to policyholders, the press and, most recently, to a federal judge and jury regarding the nature and magnitude of policyholder losses,” said Maureen Marr, a spokeswoman for the Executive Life Action Network. Policyholders say their losses totaled between $4 billion and $4.5 billion.

While the jury’s punitive damages award remains clouded, other damages may still be forthcoming. U.S. District Judge A. Howard Matz said he would rule soon on whether to award restitution to policyholders.

A parallel Executive Life fraud suit, brought by California Atty. Gen. Bill Lockyer, continues to be active, though it is awaiting a ruling from the California Supreme Court.