Settlement in Executive Life Insurance case ends 16 years of litigation
News: 2015 Press Release
SACRAMENTO, Calif.- California Insurance Commissioner Dave Jones today announced a settlement was reached with the last remaining defendant in a 16-year-old lawsuit brought by the California Department of Insurance that arose out of the 1991 liquidation of Executive Life Insurance Company. The French company Artemis S.A. has agreed to pay $200 million in addition to $110 million it paid previously bringing the total recovery against all defendants to over $930 million. The National Organization of Life and Health Guaranty Associations and the California Life and Health Insurance Guarantee Association also joined in the settlement.
"This settlement agreement closes the last chapter in the long dispute between the Department of Insurance and Artemis S.A., one of the purchasers of the Executive Life Insurance Company," said Jones. "As a result of the Department of Insurance's efforts with this settlement agreement the total recovery in the Executive Life Insurance litigation against all defendants is over $930 million."
California-based Executive Life Insurance Company became insolvent in 1991. The California insurance commissioner at the time, John Garamendi, solicited bidders to buy its assets, including its multibillion dollar portfolio of junk bonds as well as the insurer's life insurance policies and annuities. In a competitive bidding process, the commissioner selected a joint bid from a consortium of French companies that included Altus S.A., a subsidiary of Credit Lyonnais, which was owned by the French government. In winning the bid, Altus bought Executive Life's junk bonds and its consortium partners ostensibly set up and owned a new California insurance company that took over Executive Life's policies.
California law prohibited a foreign government from owning a California insurance company, which meant Altus, as a subsidiary of a French government owned bank, could not legally own the new California insurer. Despite this legal prohibition Altus entered into a conspiracy and agreements with its consortium partners in which Altus owned the new insurance company. The conspirators concealed Altus' ownership and lied about it to the California Department of Insurance and the Federal Reserve Bank of New York. Artemis joined the conspiracy later.
The California Department of Insurance discovered the conspiracy and sued all conspirators, which began a lengthy legal fight.
Media Notes: Litigation history - The department's lawsuit asserted that if the conspiracy had been disclosed, former Insurance Commissioner John Garamendi would not have selected the Altus consortium bid and instead would have selected a bid that, over time, would have returned more money to Executive Life's policyholders.
On the eve of trial in 2005, Commissioner Garamendi settled with Credit Lyonnais, Altus and related parties for $516.5 million and with the new insurance company for $78.75 million. Artemis paid $110 million to the Executive Life estate as a part of a settlement of a separate case brought by the U.S. Attorney. Other defendants paid over $25.5 million to the Executive Life Insurance Company estate. Under the commissioner's supervision, the litigation recoveries were distributed to policyholders.
Because Artemis did not join the earlier settlements, the department's case against Artemis went to trial in 2005. At trial, the federal court barred the commissioner from presenting evidence about the damage the conspiracy caused to Executive Life's policyholders. Instead, the court ordered Artemis to pay $131 million in its profits to the policyholders.
Both sides appealed, and in 2008, the U.S. Court of Appeals sent the case back for another trial in which the commissioner was to be allowed to present his case for damages. The retrial occurred in fall 2012. During the trial, the commissioner contended that a new trial judge incorrectly instructed the jury. Both sides appealed the judgment in the retrial. That appeal was pending when this settlement was reached.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.