John Garamendi, Insurance Commissioner of the State of California, as Trustee of the Mission Insurance Company Trust and the Mission National Insurance Company Trust, submits this Status Report for the Status Conference on August 15, 2005 and shows:

Events which have take place since the last Status Conference:

As of the prior Status Conference, two appeals in the Court of Appeals sought relief from orders of Department 50 which affirmed proof of claim rejections or partial rejections, while three appeals had been resolved during 2005. The two appeals have been resolved since the last status report. The Court of Appeal affirmed this Court (through Judge Czuleger) as to Georgia Pacific Corporation, while the Court of Appeal reversed Judge Czuleger's ruling as to the Industrial Trucking Service Corporation matter, and remanded to this Court for further proceedings. Industrial Trucking Service Corporation has sought reconsideration of aspects of that decision, which now pends before the Court of Appeal. Industrial Trucking Service Corporation appealed this Court's affirmance of a partial approval and partial rejection by the Insurance Commissioner. The issue on remand will be whether the partial approval should be increased.

The Insurance Commissioner has resolved further policyholder and reinsured proofs of claims since the last Status Conference. This Court has granted approvals of settlements submitted for court approval. Additional settlements are in the process of documentation finalization, and will be processed and submitted for approval in the coming days.

One application for order to show cause proceeding was filed by American International Group, Inc. ("AIG"), as to which the parties shall stipulate a briefing schedule. The issues in this application are relatively straightforward, such that the parties may be able to figure out the merits of the claims without the need for Court intervention, but a briefing schedule will be put in place in any event to keep things moving.

Proofs of Claim:

The claims department reports that all outstanding proofs of claim, other than the inter-company claims, appear to have been adjudicated, other than Industrial Trucking, discussed above, as to which litigation remains pending. One set of potential claims is being analyzed.. The Missouri Receiver of Holland-America Insurance Company Trust pointed out that some proofs of claims identified in the systems as Missouri claims may in fact be California company claims. This is being investigated by claims review now, but as the claims are largely precautionary "zero amount" claims, it is not expected that these claims, if against Mission or Mission National, will impact closing. The Insurance Commissioner's claims professionals are now doing a "closing review" of the claims approvals and rejections, to ensure everything has been reached. This review is expected to be complete by September 15, 2005.

Interim Distribution

The fifth interim distribution was completed since the last status conference. The distribution to Mission Insurance Company Trust policyholders came to over one hundred twenty million dollars, while the distribution to Mission National Insurance Company Trust policyholders exceeded forty million dollars.

Pending Motions

On August 15, 2005, this Court has before it the following motions:

1. A motion to approve a commutation with Nationwide Mutual Insurance Company;
2. A motion to approve a commutation with Corrugated Insurers Association, Ltd.
3. A motion to approve a general creditor claims approval agreement with Employers of Wausau and affiliated entities;
4. A motion to approve release of offset escrow as to FM Global; and
5. A motion to approve a revised fee agreement for the undersigned firm.

Further motions are anticipated to be set in the coming weeks to seek further approvals for the numerous settlements and claims resolutions which continue to be finalized.

Financial Matters

The Insurance Commissioner continues to work on the accounting issues for the estate with a goal of year end closing. This has entailed substantial time and effort focused on the accounting for 2004 and 2005 for the trusts.

Status of Progress on Steps to be Undertaken to Achieve Case Closing during 2005

In the last status report, a number of milestones were recognized. This is the progress on each of those milestones:

Status Item from Last Report:

1. The remaining policyholder claims must be processed, and any resulting order to show cause proceedings must be resolved. Based on current projections, it appears likely that one and possibly two further order to show cause proceedings may arise on rejected or partially rejected proofs of claims

   Progress:

   These policyholder-class orders to show cause appear less likely to arise, although it is possible that one or two more may arise among the current set of rejections. The inter-company policyholder claims have been valued, and a motion to seek Court approval on the valuation will be filed during this month. The remaining policyholder proofs of claims have been valued or will be valued this week, although a final audit to ensure that no "stragglers" exist is underway. The Industrial Trucking matter may require further court proceedings, if the parties cannot agree upon a resolution.

   Status Item from Last Report:

2. The remaining general creditor proofs of claims must be resolved. Based upon current progress, this should be complete no later than Summer 2005. The potential for an order to show cause proceeding with one company, Odyssey Reinsurance, exists, but both counsel have agreed that if the claim cannot be resolved, it will be submitted for prompt resolution by the Court.

   Progress:

   Four proof of claims on reinsurance have been processed, but the thirty day time period for applications for order to show cause has not passed. Final checks to ensure that all proofs of claims have been analyzed and processed are being completed, but this phase appears nearly over. AIG has filed an order to show cause which may require briefing and hearing.

   Status Item from Last Report:

3. The remaining reinsurance must be collected. Two reinsurers with substantial balances have not paid their sums when due, which may result in requests for relief in this Court. A motion to enforce a settlement agreement has been drafted in the event a resolution cannot be reached as to the larger matter. Over one billion dollars in reinsurance has already been collected, and thus the lion's share of the work is done. But as the last claims approvals involve some claims with reinsurance coverage, these last balances must be collected.

   Progress:

   The Reinsurance Department collected nineteen million seven hundred thousand ($19.7) million from eight reinsurers; five million three hundred thousand ($5.3 million) from commutation settlements with three reinsurers and fourteen million four hundred thousand ($14.4 million) in dividends from five insolvent reinsurers.

   The Reinsurance Department's collection efforts are centered on five hundred thirty eight ($538 thousand) due from four reinsurers. Three hundred forty three ($343 thousand) was recently billed on outstanding overcap claim settlements to two reinsurers. Brokers are working on Mission's behalf to collect the balances. Thus far, the two reinsurers involved have not responded nor objected to our billings. The sum of one hundred forty five thousand dollars ($145 thousand) is due from General Star (Monarch).

   This area has more work to do to achieve the year-end closing goal, but appears to be heading towards "on track".

   Status Item from Last Report:

4. Mission Insurance Company Trust and Mission National Insurance Company Trust were themselves reinsured by thousands of companies. As set forth above, most of the reinsurance has been collected. Yet a number of reinsurers have themselves entered insolvency proceedings. The Insurance Commissioner's staff estimates that some eighteen million dollars may be received in liquidation dividends from approved claims in insolvency proceedings. The Insurance Commissioner will collect such of those as may be collected prior to year end. It may be that some sums will still be paid after year end. The closing the Insurance Commissioner will propose, as with the earlier Enterprise Insurance Company Trust closing order (See Exhibit "A"), shall provide for the trust to remain in force, to be reopened if such collections permit a further distribution.

   Progress:

   The continued collection of sums from insolvent reinsurers and other sources makes the plan of a case closing with the right to re-open for further distributions appear the optimum solution.

   Status Item from Last Report:

5. During 2004, the Insurance Commissioner accomplished claims resolutions of policyholder and reinsured proof of claims in excess of one billion dollars in claimed amount.
   The resulting approvals, hundreds of millions of dollars in quantity, must be recognized in the Mission Insurance Company Trust and the Mission National Insurance Company Trust accounting records. This process has required a substantial accounting effort. Once this effort is completed as to year end 2004, then the outside accountants for the Mission Insurance Company Trust and the Mission National Insurance Company Trust must complete appropriate tax accounting records.
   This has proven a time-consuming project, as it is important that the work be done appropriately. However, this process appears to be eligible for completion consistent with a year end closing.

   Progress:

   Substantial efforts have been made to complete this project, which continues to pose issues, but which also continues to appear eligible for completion consistent with a year-end case closing.

   Status Item from Last Report:

6. The inter-relationship between Mission Insurance Company Trust and Danielson Holding Corporation results in potential distributions to policyholders and general creditors. Danielson Holding Corporation partcipated in a plan of rehabilitation, which resulted in a debt-for-equity swap of shares in Danielson Holding Corporation to the creditors of the insolvent insurance companies.
   Thus, each approved claimant with an unpaid claim should receive an appropriate portion of shares in Danielson Holding Corporation from the following number of shares for each of the trusts:
   1. Mission Insurance Company Trust:
   2. Mission National Insurance Company Trust.

   The mechanics of this distribution are established, as the Insurance Commissioner has already arranged for such a distribution as to Enterprise Insurance Company Trust policyholders.
   Yet this distribution will need to be finalized prior to closing. The Insurance Commissioner has contacted Danielson Holding Corporation representatives about the impending closing, and his staff believes that this can be accomplished by year end 2005.

   Progress:

   Significant and substantial discussions with Danielson Holding Corporation have taken place about a number of key closing issues. These discussions appear unlikely to prevent year-end closing. They may require further negotiations and effort by the Insurance Commissioner's staff.

   Status Item from Last Report:

7. The net results of the 2004 operations may have tax ramifications, as the Mission Insurance Company Trust and the Mission National Insurance Company Trust file their income taxes on a consolidated basis with the Danielson Holding Corporation. While substantial net operating losses from prior Mission operations exist which reduce any potential tax liability, the completion of accounting updates will also require attention to the tax results of the operations for 2004.

   Progress:

   The Insurance Commissioner's staff is focusing on these issues, with an awareness and effort to comply with a year-end closing goal.

   Status Item from Last Report:

8. The Mission computer system has a value, and the Insurance Commissioner anticipates filing a motion to transfer the software for cash consideration in the near future.

   Progress:

   Final negotiations should result in a proposed agreement being submitted for Court approval in the coming weeks.

   Status Item from Last Report:

9. The Insurance Commissioner is winding up nine "offset escrows". These escrows were created when reinsurers of Mission contended that they were also reinsured by Mission on other books of reinsurance business,and thus had offsetting claims. The offset escrows were set up to set aside monies that might otherwise be owing to Mission Insurance Company, Mission National Insurance Company and Enterprise Insurance Company, pending determination of whether the reinsurer had an offset. Now that the reinsurance team has substantially completed the valuation of reinsurance proofs of claim, the amount of offsets, if any, has been established. The Insurance Commissioner has written to affected reinsurers, asking them to agree to the distribution of the assets in accordance with this claims valuation process. If they do not agree, motions will result to enforce the escrow agreements. This should be wrapped up by year end, barring an appeal.

   Progress:

   A motion to approve the FM Global escrow distribution pends before the Court.
   Two other escrows will resolve upon approval of settlement agreements on the verge of being submitted to the Court. At least one motion to approve a disbursement will be required.
   As to the remaining five, negotiations are underway to try to reach agreed distributions, failing which agreement, motions will be filed.

   Status Item from Last Report:

10. The Insurance Commissioner plans to submit a motion authorizing the destruction of outmoded computer records near year end.

    Progress:

    This remains the plan.

    Status Item from Last Report:

11. Mission Insurance Company and Mission National Insurance Company wrote substantial books of workers' compensation business and also general liability and automobile liablity business. In order to settle claims arising from this business, the companies entered into numerous structured settlements and trust arrangements, providing that claimants got funds until the claimant passed away, and the reversion went to the insurer. The Insurance Commissioner is in the process of collecting the remaining sums due on the remaining such structures. A few structures will have the potential for reversion at year end because the claimant has not yet passed away, but the closing order will permit the relevant trust to collect such funds, with a motion to reopen being permitted should sufficient funds exist for a new distribution.

    Progress:

    Substantial success has been experienced in collecting sums to liquidate these payment streams into sums certain. The closing order will still need to provide a mechanism for later-received payments.

    Status Item from Last Report:

12. The insurance guaranty associations received early access distributions pursuant to California Insurance Code Section 1035.5. Pursuant to that statute, the insurance guaranty associations must return any sums received in excess of their ultimate dividend. To equalize the distributions, the Insurance Commissioner has requested each association to return funds in excess of the last interim distribution. The member associations, with the assistance of the National Conference of Insurance Guaranty Funds, are expected to comply.

    Progress:

    Many associations have complied. Some have failed to comply. Motions to enforce the early access statutes will be filed in September if compliance is not forthcoming. The Insurance Commissioner remains optimistic that guaranty associations will follow the law, but delay will not be permitted to derail closing.

    Status Item from Last Report:

13. A formal motion to close the trusts will be filed. The targeted filing date is September 2005. The mechanism used for Enterprise Insurance Company Trust will be followed here, with minor modifications. The motion to close shall provide for a "two step" closing. The first step will give notice to the claimant universe of the final closing. The motion will seek approval of the closing process at an initial hearing, and then a final hearing at which closing is accomplished. This second step, the final closing hearing, will include a request to discharge the Insurance Commissioner.

    Progress:

    This remains on track for September filing.

    Status Item from Last Report:

14. The process of closing requires numerous steps to be undertaken:
    1. a closing budget must be drawn and implemented;
    2. the closing distribution must be calculated;
    3. the assets must be readied for distribution by conversion from investment account assets into cash or cash equivalent assets;
    4. a distribution table of approved claimants must be prepared;
    5. the shares distribution must be arranged;
    6. unclaimed property must be sent to the state Unclaimed Property Fund;
    7. the claims files must be stored, and, after passage of some years, ultimately destroyed;
    8. a reserve budget for unexpected issues such as tax matters must be established, and a provision made for distribution of those funds through re-opening should the funds remain unexpended; and
    9. final distribution must be accomplished, and documented.

    Progress:

    This remains on track..

    The substantial accounting work underway to incorporate the dramatic progress of the claims adjustment process during 2004 may require resolution of administration or tax-related issues. The Insurance Commissioner will seek to minimize these risks, and will move the Court to permit funds to remain on reserve in the trusts, if need be, similar to the method used with the Enterprise closing.

    Implementation of Closing Plan

    The Insurance Commissioner's closing goal remains to accomplish the "to do" list above by year end 2005, and aim to close these cases by year end this year, or early next year. Although the potential for reinsurance litigation if a reinsurer does not pay, or claims appeals on the last handful of claims is possible, the Insurance Commissioner is strongly motivated to get these cases closed, and to get the policyholders and creditors their distributions.

    Closing Issues

    The various tax and closing issues may require the Insurance Commissioner to seek Court approval on further arrangements and agreements. These should be consistent with a year-end closing.

    Conclusion

    The plan remains to close at year-end, and make final distribution just after the year-end.
    Many challenges remain, and the Insurance Commissioner does not seek to minimize those challenges in addressing this Court. But the determination remains to try to move this case toward completion, and the goal-a year end closing and a January major distribution-remains the same.