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Report on Executive Life Issued

Garamendi obtained more than $1 billion in awards and settlements for the seized insurer's customers, an audit says.

October 20, 2006|Marc Lifsher | Times Staff Writer

SACRAMENTO — Insurance Commissioner John Garamendi's office obtained more than $1 billion in legal settlements and judgments stemming from his 1991 seizure of junk-bond-laden Executive Life Insurance Co., the state auditor said Thursday.

But questions about how much of that money has been returned to policyholders remain to be answered by a second report from Auditor Elaine M. Howle. That installment is still in the works.

Garamendi, a Democrat running for lieutenant governor Nov. 7, called the report a vindication.

Critics, including his opponent, Republican State Sen. Tom McClintock, noted that the auditor had yet to address a potentially more damaging allegation against Garamendi: that his mismanagement of the Executive Life case caused policyholders to lose as much as $4 billion.

Howle issued her findings in response to a 2005 request made by two senators and approved by the Legislature's Joint Legislative Audit Committee.

Howle's report said that Garamendi took custody of more than $1.1 billion in settlements and judgments in civil and criminal cases brought by state and federal authorities against various parties involved in the acquisition of Executive Life's insurance business and its bond portfolio.

The state Department of Insurance, headed by Garamendi, set aside and began to distribute $988 million to Executive Life policyholders and industry-backed guaranty associations that had financed hundreds of millions of dollars in payments of claims against the insolvent insurer.

The department also paid $165 million to the private attorneys who pressed a fraud lawsuit against French bank Credit Lyonnais and other French investors, including billionaire businessman Francois Pinault.

Howle said that the contracts with the law firm of attorney Gary Fontana were reasonable and that the fees were in line with those paid by other public agencies in similar cases.

"The report confirms what we've been saying for 14 years, that the handling of Executive Life was appropriate," Garamendi said. "We went after those responsible and returned $1.1 billion."

The audit, however, did not address a second request from the Legislature to determine exactly how much money was paid to Executive Life policyholders and how much money they might have lost because of the collapse of the once highflying insurance company.

Howle said she couldn't finish the audit until she got more information from Executive Life's successor, Aurora National Life Assurance Co. of Los Angeles.

Maureen Marr, an activist with the Executive Life Action Committee, said she was eager to hear more from the auditor about what she estimates was a $4-billion loss by 360,000 policyholders.

"These were the cash values and policy benefits. Many lives were ruined," Marr said.

Vince Watson, one of Garamendi's most vocal critics on the Executive Life issue, said the commissioner lost billions of dollars in policyholder money by rushing to sell the insurer's bond portfolio at cut-rate prices to the French investors.

"He's made a lot of mistakes," said Watson of Phoenix, who has appeared with his wife in campaign advertisements for McClintock. Watson said his 26-year-old daughter Katie, who has been in a vegetative state since age 2, had lost more than $1.5 million of money that was invested with Executive Life after she received it in a legal settlement with a hospital.

State Sen. Dave Cox (R-Fair Oaks), one of the legislators who asked for the Executive Life audit, said he was eager to get Howle's second report.

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