Court OKs Sale of Exec Life to French Investment Group

A Superior Court judge Wednesday cleared the way for the $3.55-billion sale of failed Executive Life Insurance Co. to a French investment group, which would give 400,000 policyholders full access to funds that were frozen when regulators seized the insurer in April, 1991.

Judge Kurt J. Lewin’s ruling was “a clean sweep of objections� to Insurance Commissioner John Garamendi’s plan for rehabilitating First Executive, the largest U.S. insurer to ever fail, said lawyer Carl Rubinstein, whose firm represents the state Department of Insurance.

Rubinstein said he expected the sale, to a group led by Altus Finance and Mutuelle Assurances Artisanale de France, to close in 60 to 90 days.

The final recovery for policyholders will be at least 72 cents on the dollar, Rubenstein said. For 95% of California policyholders, the state guarantee fund will cover the shortfall.

In his ruling Wednesday, Lewin rejected arguments by holders of $2 billion in municipal bonds backed by Executive Life’s guaranteed investment contracts. These so-called muni-GIC investors sought to be paid the full face value of their bonds. Many were bought by speculators at prices as low as 25 cents on the dollar after Executive Life was seized.

Garamendi argued that if these investors deserve anything, it should be based on the amount they actually paid for the bonds rather than on the face value.

Trustees for the bondholders said an adverse decision would shake confidence in the market for such securities. In effect, they argued that speculators serve an important function.

Lewin said he saw no reason “that traffickers in tragedy ought to benefit to the net detriment of persons who invested in and relied on the safety of a regulated insurance company and rode out the storm.�

Lewin ruled earlier that the muni-GIC holders should be treated as policyholders. Garamendi appealed, arguing that they deserve the lower status of general creditors. If his appeal succeeds, other policyholders could gain another 10 cents on the dollar, Rubinstein said.

A policyholders group hailed the decision. “We feel that the rehabilitation plan has been completely upheld, and I think this really benefits the policyholders, especially the ruling on the muni-GICs� said Maureen Marr, coordinator of the 2,000-member Action Network for Victims of Executive Life.