Award in Executive Life Case Tossed Out

A federal judge has overturned a jury’s $700-million punitive damage judgment against a French company that was found guilty of fraudulently acquiring assets from failed insurer Executive Life Insurance Co. more than a decade ago.

U.S. District Judge A. Howard Matz still must rule on whether Artemis, a Paris-based holding company, should pay restitution to the state of California for damages that might have been caused by its purchase of high-risk “junk” bonds once held by Executive Life.

State Insurance Commissioner John Garamendi seized the financially shaky company in 1991 and the state later sued Artemis and several other companies and individuals in an effort to recoup some of the money lost by Executive Life policyholders.

A brief summary of Matz’s ruling was filed Tuesday. The judge hasn’t released the full text of his order, which should provide his rationale for overturning the jury’s punitive damage award.

However, when the award was made public July 21, legal experts immediately speculated that it would be tossed out. Although the jury found Artemis liable for punitive damages, which are meant to punish wrongdoing, it didn’t assess any compensatory damages, which are designed to repay an injured party for actual losses. Under recent rulings by both the U.S. Supreme Court and California’s highest court, compensatory damages generally must be awarded before punitive damages can be assessed.

“The jury found that nothing Artemis did damaged the commissioner at all,” said James Clark, Artemis’ lawyer.

A spokesman for Garamendi said the commissioner was disappointed by Matz’s decision and hadn’t decided whether he would appeal. But Gary Fontana, Garamendi’s outside attorney handling the case, said an appeal was likely if the judge didn’t order Artemis to repay the $851 million in profit the state claims the firm made from the Executive Life bonds.

“The jury concluded there had been a fraudulent act and that Artemis was part of it,” Fontana said.

Fontana has led the insurance commissioner’s legal team since it filed a 1999 lawsuit that alleged that French bank Credit Lyonnais, then controlled by the French government, conspired with Artemis and other French investors to earn a profit of at least $1.7 billion from increases in the value of the Executive Life securities.

Credit Lyonnais and the French government settled their part of the case in February for $600 million. Artemis and its then-chairman, billionaire Francois Pinault, opted to fight the allegations, arguing that they acquired the bonds after Credit Lyonnais closed its deal with Garamendi, then serving an earlier term as insurance commissioner.

Although the jury, after an eight-week civil trial in Los Angeles, found that Artemis had committed fraud, it absolved Pinault of wrongdoing.

Representatives of Executive Life’s approximately 330,000 customers blamed Garamendi for failing to make it clear during the lengthy legal proceedings that policyholder losses exceeded $4 billion.

“The commissioner maintained his silence and the fiction that his handling of Executive Life was a great success for policyholders. No wonder the jury didn’t find any compensatory damages,” said Maureen Marr, a spokeswoman for the Executive Life Action Network.