Exec Life Policyholders Rebuffed

A group of Executive Life Insurance policyholders has lost a critical round in their fight to keep alive their lawsuit accusing Credit Lyonnais and its partners of fraud in the 1993 purchase of the defunct insurer’s assets.

In an unpublished decision issued Monday, a three-judge panel of the U.S. 9th Circuit Court of Appeals upheld the trial court’s dismissal of the lawsuit.

The justices ruled that state law gives California’s insurance commissioner exclusive standing to represent policyholders in such disputes.

The lawyer representing the policyholders, who are seeking to recover an estimated $4 billion in losses, said Thursday that he would appeal despite what he views as long odds.

“We will petition the rest of the 9th Circuit to take a look at this case,” said Tom Schaefer, a San Diego lawyer. “It’s like saying we lost every round of the fight, and we have the last 10 seconds to score a knock out. We’re not giving up. But this was a really, really important round. We got one lousy paragraph after three years of litigation.”

In 1991, then-Insurance Commissioner John Garamendi seized Executive Life, which at the time was the nation’s largest insurance company insolvency.

Garamendi put the company and its assets, primarily a high-risk bond portfolio with a face value of $6 billion, up for sale. French investors won the bidding for the company and the junk bonds. Policyholders attacked the $3.2-billion deal as a giveaway, but it won court approval.

Six years later, a whistle-blower disclosed a series of secret agreements that identified Credit Lyonnais, then controlled by the French government, as the true purchaser. Because state law prohibits foreign governments from owning insurance companies, the revelation spawned a wave of litigation.

No trial has been set, but a series of decisions over the last month is thinning the list of plaintiffs. Last week, U.S. District Judge A. Howard Matz dismissed a lawsuit filed against the French bank and its partners by California Atty. Gen. Bill Lockyer. Matz said state law gives the insurance commissioner exclusive standing in such cases.

Last month, the 9th Circuit panel upheld Matz’s dismissal of a second policyholders’ suit, citing the same law.

Many policyholders fear that if the insurance commissioner’s lawsuit is the only one allowed to go forward, their interests will not be as vigorously pursued.

The insurance commissioner’s suit, for instance, does not name deal broker Apollo Advisors or its president, Leon Black, as did lawsuits filed by the policyholders and Lockyer.

The policyholders’ suits also accuse Garamendi and his successor Chuck Quackenbush of breach of fiduciary duty for allegedly bungling the deal to the detriment of their policies and annuities.

“They are not representing the policyholders, and no one will listen to us,” said Sue Watson of Phoenix, whose severely disabled daughter Kathleen Watson’s monthly annuity payments are $9,000 less than Executive Life had guaranteed them.

Insurance Commission spokesman Harry Levine said the agency is aggressively pursuing the case on behalf of all policyholders and is willing to sit down with anyone who has concerns.

“We’re working very hard and diligently on this case,” he said.