Some Executive Life Insurance Company policyholders want California Attorney General William Lockyer to look into state insurance regulators’ handling of the Executive Life case.[@@]
A federal judge in Los Angeles, U.S. District Judge Howard Matz, has ordered Artemis S.A., Paris, to pay about $190 million in damages plus interest in connection with the allegations of fraud stemming from a 1991 takeover of Executive Life, Los Angeles.
The new ruling brings total damages to be paid by several companies involved in the takeover of Executive Life to about $900 million, but the damages total is too low, according to Vince Watson, executive director of the Executive Life Action Network, a group that represents Executive Life policyholders.
“I really think that by the time the other interests get their cut, there will be little left over for the policyholders,” Watson says.
Executive Life failed as a result of the collapse of the market for low-rated bonds, and California regulators accepted a $3.2 billion offer for the company’s bond portfolio from a subsidiary of Credit Lyonnais, a company that was owned by the French government.
At the time, California prohibited foreign governments from buying California insurance companies.
California insurance regulators have accused Artemis, a company owned by a French billionaire, of helping to hide the bank’s illegal role in the purchase of Executive Life.
Several major French parties involved agreed in December 2003 to pay $771 million to resolve a civil case.
A jury ruled against Artemis in a civil trial in May and imposed $700 million in punitive damages. In July, Matz threw out the punitive damages award.
California Insurance Commissioner John Garamendi, the commissioner who approved the 1991 Executive Life takeover, has welcomed Matz’s new ruling requiring Artemis to pay $190 million in damages.
But the Matz ruling questions Garamendi’s strategy of basing his case against Artemis on the fact that California banned foreign ownership of life insurers back in 1991.
“Given the hyper-technical violations that were at the core of the commissioner’s case against Artemis, there was support for Artemis’s contention that the commissioner seized on Section 699.5 (foreign ownership ban) as an opportunity to get around the financial consequences of the decision he had made in the early 1990s – decisions that were reasonable at the time, but later exposed him to second-guessing because of a change in market conditions,” Matz writes in the ruling.
Maureen Marr, an Executive Life Action Network co-founder, says Matz’s criticism of Garamendi is “well-deserved.”
Marr says Executive Life policyholders now have suffered more than $4.5 billion in actual damages.
Garamendi mishandled Executive Life’s assets and let the private investors that operated the successor company earn hundreds of millions of dollars “for operating nothing more than a run-off,” Marr says.