The Executive Life Action Network (ELAN), an activist group of former Executive Life Insurance Co. policyholders, on Tuesday filed a second California Public Records Act (CPRA) request with Insurance Commissioner John Garamendi urging him to release documentation of more than $4 billion in policyholder losses that resulted from the largest financial fraud in California history. A civil trial against Credit Lyonnais to recover losses and award damages is scheduled to begin on Feb. 15, 2005.
“Our first request for documentation of our losses was met with a disappointing response from the Commissioner and his department. In no way did their response address the billions of losses that policyholders suffered since 1991,” said Sue Watson, co-founder of the Executive Life Action Network, and mother of Katie, an annuitant who suffered brain damage as an infant due to reported hospital error. “Their incomplete response was obviously not a serious response to our very clear request. This second request is specific and should not be ignored.”
The CPRA requires state agencies to release documents to the public upon request unless specific statutory exemptions apply.
Following is the full text of the letter sent today to the Insurance Commissioner:
“Dear Commissioner Garamendi:
During the thirteen years since the conservation of Executive Life Insurance Co. many of its more than 300,000 policyholders became painfully aware of the losses in their account values, and the wholesale changes to their policy benefits and guaranties.
Many thousands saw their lives and future plans irrevocably altered. Plans made to provide for personal and employee retirements, to provide for spouses and children when death occurs, to secure company pension and municipal bond investment accounts, to provide for victims of catastrophic circumstances who require life-long care – all these plans were affected, with economic losses to policyholders of billions of dollars.
Then a whistleblower came forward and exposed the fraudulent actions of Credit Lyonnais and others who carried out a scheme in which they illegally obtained Executive Life’s assets and insurance business, subverting federal and possibly state laws in the process. Policyholders were encouraged that they might recover their losses, especially when Credit Lyonnais and others pleaded guilty to federal criminal fraud for their actions a year ago.
Undaunted by their acknowledged criminal fraud actions, Credit Lyonnais and others justify their wrongdoing by asserting that their actions hurt no one, that theirs was a victimless crime. We believe that it is essential to the policyholders’ hope for recoveries that their losses be acknowledged.
Since the whistleblower came forward, the Department of Insurance has litigated successfully to cast aside lawsuits on policyholders’ behalf by the California Attorney General (now on appeal at the California State Supreme Court) and by plaintiffs in a class action. If you believe, as you have argued in court, that the Insurance Commissioner and Conservator for the Executive Life policyholders is the only lawful entity to represent us in court, then you are responsible to advocate for us with all the evidence you have, including presenting evidence regarding our real losses.
Trial is presently scheduled for February 15, 2005. At the November 22, 2004 hearing, Judge Matz encouraged the parties toward settlement. The clock is ticking toward settlement or trial.
On December 15, 2004, we sent you a California Public Records Act (CPRA) request, which asked for documentation of what former Executive Life policyholders lost(1) to date. The department’s senior staff counsel, Harry J. LeVine, said that you would produce a …” ‘shortfall calculation’ that was prepared by the personnel of Aurora National Life Assurance Company …” (Aurora is a defendant in your lawsuit!) The “shortfall calculation” was not responsive to our request. We sent follow up questions to Mr. LeVine at his request, and received either no response to key questions, or inaccurate or incomplete responses.
It is clear to us that your department is not going to make a meaningful reply to our previous request to give evidence of economic losses to policyholders in a timely manner.
(1) The exact wording of our first CPRA request states, ”Any and all
documentation in any form whatsoever — including memoranda, reports, letters, emails, facsimiles, digests, charts, tables and graphs – that addresses, describes, or in any way references the value of policies held by policyholders of the former Executive Life Insurance Company of California. Included within the scope of this request is any document that makes any reference to any purported comparison between what policyholders have actually recovered as a result of, or in connection with, the Executive Life rehabilitation (including, but not limited to, amounts recovered under the Rehabilitation Agreement entered into on September 3, 1993), and what they would have received to date through their contractual benefits had Executive Life Insurance Company of California not failed.”
Therefore, this request for information per the California Public Records Act (Government Code Section 6250 et seq and the California Constitution, as amended by passage of Prop. 59 on November 3, 2004) plainly asks the following of you:
Your “Rehabilitation Agreement” was implemented in 1993, affecting ELIC policies after April 11, 1991. What were the economic losses, damages, or shortfalls (referring to the dictionary definitions of these words, not the arcane and particular language of the Rehabilitation Agreement and other legal agreements in the ELIC case) to policyholders by aggregate policy types, between April 11, 1991, and the present day? Economic losses, damages, or shortfalls involve all those elements that the Department of Insurance had to cost out in negotiating the Rehabilitation Agreement, the Enhancement Agreement and subsequent agreements or litigation that affected former ELIC policies, and, thus, policyholders’ lives.
The information we seek falls into two categories:
1. A full audit of the economic damages suffered by policyholders including the elements that you have not acknowledged that make up economic losses, damages, etc. to policies which include, but are not limited to the following:
* Application of CDSR instead of Account Values (the department’s
‘unique’ account valuation mechanism — the “Conservation Date
Statutory Reserve”) which created a haircut unevenly among policy types even before the “restructuring percentage” was levied;
* Application of the Restructuring Percentage;
* Allocation and additional holdbacks of account values;
* Initial interest rate adjustments, and changes in crediting rates after
1993, including the difference between Aurora’s crediting rates and the
prevailing industry average crediting rates;
* Change in policy contractual terms (including new, higher premiums,
mortality charges, new fees, changes in policy loan terms, moratorium
charges, delayed contract maturity dates, etc.);
* The economic damage incurred by policies whose contractual maturity was not honored due to the moratorium period (delaying the maturity of some policies by nearly 5 years);
* Subtraction of interim payments(2) (between April 1991 and September 1993), including hardship payments, with interest, made to
policyholders who had policies such as annuities that were in regular,
many in monthly, payment status.
(2) One of the most cynical explanations of the information your
department did provide was Harry LeVine’s explanation of an item
called “Shortfall A” ($86 million dollars). Mr. Levine writes “The
term “Shortfall A” on the spreadsheet pertains to annuities that
were in force between 4/11/91 and 9/3/93. Annuities were paid during
that period at the rate of 70%. The principal component of the
shortfall is the 30% that was not paid.” In fact all payments,
including those to all annuitants and structured settlement
policyholders during that two year time period were treated as loans to them, and subtracted from their account values with interest when
Aurora went forward. Policyholders had no idea they were receiving
“loans” instead of their annuity payments.
2. NOLHGA or the Participating State Guaranty Associations (PGAs) direct payments to policyholders (paid and allocated to policyholders through Aurora), and the amounts credited against the PGA’s obligations to policyholders that were either distributed to policyholders or credited against the PGA’s obligations to policyholders, per the Enhancement Agreement’s subrogation agreement, also facilitated by Aurora.
As stated by Mr. LeVine in his letter to us of December 23, 2004, we would have to “… reduce the Shortfall by the guarantee associations’ payments, trust distributions and any other payments that were made after September 3, 1993. You must also account for the time value of money.” When pressed in writing and on the telephone, Mr. LeVine stated that the department doesn’t have any information about the NOLHGA/PGA enhancement fulfillment of their obligations. This is a startling admission of neglect, if true, of the Conservator’s responsibilities.
Based on the Enhancement Agreement negotiated by the Commissioner, NOLHGA/PGAs, and Aurora, we seek the following documents that are set forth in Exhibit C to Executive Life Insurance Company Restructured Contracts and Policies Compilation of Amended and restated Enhancement Agreement:
Article 13, Section 13.2 Reports by Newco (Aurora). Newco shall, on
or before March 31 of each statutory reporting year following the year
in which the Closing Date occurs, provide the Participating Guaranty
Associations and the Conservator (Ed Note: the Insurance Commissioner) a report which shall specify with respect to each Covered Contract held by a Participating Covered Contract Holder which is still in force as of December 31 of the immediately preceding calendar year (i) the portion of the account value of each ELIC Restructured Contract that is attributable to the GA Enhancement Amount, and (ii) the amounts paid to all Participating Covered Contract Holders during the immediately preceding calendar year attributable to the GA Enhancement Amount.
Article 13.3.2 Newco (Aurora) shall maintain accurate and complete
records of all amounts paid to Participating Covered Contract Holders.
Also, as it is an important component as to how the NOLHGA/PGA factor may affect policyholder losses, we seek to obtain documents, reports, etc. of distributions made directly to NOLHGA and/or the PGAs from the various trusts (including from the real estate trust, for which NOLHGA/PGAs were not required to credit policyholders against their (NOLHGA’s) obligations), and other participations and distributions per the Enhancement Agreement. We would like this information by aggregate amount per policy type.
Mr. LeVine did provide us with a spreadsheet of the aggregate Enhancement Trust Distributions, however, distributions to NOLHGA weren’t broken out and we seek that information.
Finally, although the information we are requesting appears complicated, these are all the components of the Rehabilitation and Enhancement Agreements that the Commissioner, as Conservator, negotiated. It is incomprehensible that the Commissioner agreed to the terms of these agreements without understanding and documenting how policyholders would be economically impacted.
And it is even more incomprehensible that the Commissioner as Conservator of an insolvent estate that is still the responsibility of his department would not have the information that we request regarding real economic losses to policyholders. Policyholders have been living with the effects of the elements of these agreements for thirteen years. The Executive Life estate – the policyholders’ money — has paid for many, if not all, of the expenses involved in this conservation. It’s unthinkable that this information would not be available to policyholders now.
If we can provide any clarification that will help expedite your attention to this request, please contact Maureen Marr at (212) 721-7001. Thank you for your attention to this matter.
Executive Life Action Network
Sue Watson/Vincent Watson
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