On April 11, 1991, at the request of the California Department of Insurance, the Superior Court of the State of California for the County of Los Angeles, through a court order, appointed the Insurance Commissioner of the State of California, as conservator of Executive Life Insurance Company (ELIC). The Court Order grants the Commissioner a broad range of discretionary authority, and provides the Commissioner the ability to, among other things, conduct the business of ELIC, dispose of any or all of the Company's assets and liabilities, and act in all ways and exercise all powers necessary for the purpose of carrying out the Court order.
Commencing in April 1991, the Commissioner initiated actions to rehabilitate ELIC to protect the long-term interest of all its policyholders. In August 1991, the Commissioner in his capacity as Rehabilitator (the Rehabilitator), New California Life Holdings, Inc. and Altus Finance (Altus), a French corporation entered into an Agreement of Purchase and Sale in connection with the Rehabilitation of ELIC. This Agreement was subsequently amended and modified into the ELIC Rehabilitation Plan.
Altus/MAAF affiliates, a group of French and Swiss investors, won the court's competing bid process that included the National Life & Health Insurance Guaranty Association (NOLHGA), and Sierra National Insurance Holding, Inc. et al.
On March 3, 1992, certain non-investment grade securities (junk bonds) were transferred to Altus pursuant to the Rehabilitation Plan and Court approval.
On August 13, 1993, after an extensive period of intense litigation by the parties interested in the assets of ELIC, the Los Angeles Superior Court approved the terms of the modified Rehabilitation/Liquidation Plan of ELIC. The Plan went into effect on September 3, 1993. Effective February 15, 1994, Policyholders were given the opportunity to either opt out of the rehabilitation plan and receive the liquidation value of their existing ELIC contracts or opt in to a new restructured contract with the newly formed company, Aurora National Life Assurance Company, Inc. (Aurora), a wholly owned subsidiary of New California Life Holdings, Inc. The restructuring of ELIC policies permanently adjusted the account value or benefit payment of each contract on the basis of Conservation Date Statutory Reserves ("CDSR"). Opt out and opt in policyholders however, were entitled to participate in future distribution from the remaining assets of the ELIC estate. In addition, opt in policyholders were promised to receive enhancements to their policy values from the Guaranty Associations and Aurora. Since January 1995, the Rehabilitator has distributed $1,682,047,492 to/or for the benefit of former ELIC policyholders.
In February 1999, the Commissioner filed a lawsuit entitled Garamendi v. Altus Finance S.A., et al. (Credit Lyonnais litigation). Briefly, the Commissioner contends that the entities that purchased ELIC's "junk bonds" and which assumed and reinsured ELIC's policies as part of the ELIC rehabilitation did so in violation of the federal Bank Holding Company Act, California Insurance Code Section 699.5, and other California statutes. The Rehabilitator alleges that in addition to violating such statutes, the defendants' conduct was fraudulent and the defendants committed other actionable conduct in connection with the purchase of the ELIC junk bonds and insurance assets.
In 2005, the rehabilitator settled with some of the defendants for an amount of $730.5 million of which $211 million were distributed to opt out policyholders in February 2006 and $403 million to Aurora who effected distributions to opt in policyholders in October 2006 and October 2007.
The case went to trial against two remaining defendants and at the conclusion, October 4, 2005; the jury awarded the Rehabilitator punitive damages of $700 million against Artemis S.A. In addition, the court ordered Artemis to pay restitution to the Rehabilitator of approximately $131 million (net). The Judge vacated the jury's punitive damages award of $700 million. The Rehabilitator appealed the judge's decision concerning the punitive damages award and Artemis appealed the judge's restitution award in favor of the Rehabilitator.
On August 25, 2008, the U. S. Court of Appeals for the Ninth Circuit decided to (1) vacate the districts court's $241 million ( $131 million net) restitution award with leave to reinstate if warranted, at the close of a new damages phase trial, (2) affirm the district court's order vacating the jury's $700 million dollar punitive damages award under California law, and (3) remand the case to the district court for a new trial against Artemis on the issue of damages (including punitive damages), if any.
The new trial was previously scheduled to be heard on November 3, 2009. The district court has vacated the November 3, 2009 trial hearing and has not yet set a new court date. The Rehabilitator's attorneys are working vigorously as we wait the court's new trial date.
Presently the remaining assets of the Opt Out Trust, (a court approved grantor trust of ELIC formed for the purpose of receiving approximately 33% of ELIC's assets which are distributed to approximately 27,300 former ELIC policyholders ("Opt Outs") who elected to terminate their policies), consist of (1) distributions for policyholders with whom contact has been lost, in most cases due to bad addresses (funds for those for whom contact has been lost will be escheated to the last known state of residence), and (2) the settlement proceeds from the Credit Lyonnais case collected from Mutuelle Assurance Artisinale De France (MAAF). The cost of making a distribution is substantial and the Commissioner determined to defer distributing the MAAF funds until after the Credit Lyonnais retrial so that it could be combined with distribution of any judgment obtained in the retrial. The retrial has been postponed, however, and therefore the Commissioner decided to distribute the MAAF funds on September 30, 2010.
Depending on the outcome of the retrial, when the retrial takes place, the Commissioner anticipates that the party that does not prevail may embrace the opportunity to file an appeal, if that party does not agree with the court's decision. An appeal may delay the estate's final distribution and estate closure.
On December 2009, the Court approved over 94% of the Commissioner's expenses for the period January 1, 1997 to December 31, 2009 for administrating the ELIC estate. Certain banks (that are trustees for Guarantee Investment Contracts (GICs) have appealed the decision approving the expenses from January 1997 to June 30, 2008. as well as the order denying Certain Banks their attorneys fees in challenging the Commissioner's expenses.
