Executive Life Policyholders Still Waiting for Payouts

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Executive Life Policyholders Still Waiting for Payouts

By AMANDA BRONSTAD

Staff Reporter

In a $10 billion bankruptcy, $56 million doesn’t seem like much.

But a group of attorneys representing the 300,000-plus policyholders of Executive Life Insurance Co. at the time of its 1991 collapse and sale are prepared to take on the state Department of Insurance over the dollars owed to policy holders.

“By reason of nothing other than bureaucracy, it’s taken four years to distribute $50 million from the Department of Insurance,” said Robert Wallan, an attorney with Pillsbury Winthrop LLP in Los Angeles, who represents policy holders. “Maybe $50 million isn’t $2 billion, but it’s $50 million that’s just sitting there.”

Wallan says the department is focused on a civil suit it filed in 1999 against several European entities it claims fraudulently hid the true purchaser of Executive Life in 1991. The U.S. Department of Justice is also involved in the matter.

The $56 million settlement in question includes $42 million from a settlement between Drexel Burnham Lambert Inc. and First Executive Corp., the parent company of Executive Life, Wallan said. Drexel Burnham was an investment bank in the 1980s that provided many of the junk bonds in Executive Life’s portfolio.

The remaining $14 million is based on the Department’s accounting for interest accrued since the settlement in 1995.

Wallan said the Department is unnecessarily concerned about liability in distributing the First Executive, or FEC, funds. He points to an Oct. 24, 2001 U.S. Bankruptcy ruling that gave the green light for the Department to begin distributing funds. He also said the recent ruling backed an earlier Los Angeles Superior Court decision to dole out the funds.

But Lucia Coyoca, an attorney for the Insurance Commissioner’s proceedings in the FEC litigation trust, said the Department is not hedging on the distribution. She said the multiple court rulings were necessary to ensure the funds were distributed using a method that was fair to all policyholders, which range from bondholders to individuals with long-term disabilities.

However, the Department still has not distributed the FEC funds, even with approval from both courts. Coyoca said there are two issues creating the delay. First, the Department is still in pending litigation with First Lincoln Holdings Inc., the successor to First Executive, which claims a share of the FEC trust between $2 million to $10 million. The Department is also putting in place a record keeping system designed to distribute the funds on an individual policyholder basis, she said.

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