By Robert Dixon
Correction: Insurance attorney Edward S. Stone's middle initial was reported incorrectly.
For more than two decades, insurance attorney Edward S. Stone’s clients have been battling to collect on structured settlement annuities purchased from the now-defunct Executive Life Insurance Co. of New York.
Despite promises made years ago by officials of the quasi-governmental New York Liquidation Bureau, those clients received letters recently telling them that benefits were being cut by as much as two-thirds. Stone is leading a class-action suit to try to recover the annuitants’ funds. He tells a long, sad story of mismanagement to explain how the case has dragged on so long.
Executive Life Insurance Corp. of California was established in the 1980s by Fred Carr, a California financier who funded his life insurance firm with the purchase of junk bonds from bond king Michael Milken’s Drexel Burnham Lambert, Stone said in a recent interview. The idea was that the high-yield bonds would generate sufficient income to pay the Single-Premium Deferred Annuities that Executive Life sold. The holding company also operated a subsidiary, Executive Life of New York.
In 1991, then-California Insurance Commissioner John Garamendi declared Executive Life insolvent and took it over. Six weeks later, Executive Life filed for bankruptcy protection. According to the Los Angeles Times, losses at Executive Life were estimated between $4 and $4.5 billion in 2005.
Things went from bad to worse. Garamendi sold Executive Life to a consortium of French firms. A whistleblower later revealed that the consortium formed by investor group Artemis S.A. was a front for bank Credit Lyonnais, which had been barred from purchasing the insurance company. In a series of plea bargains and settlements, the fraudulent buyers ponied up $772 million.
Concerned about what was happening at First Executive and its subsidiaries, New York's then-Insurance Commissioner Salvatore Curiale seized control of ELNY on April 16, 1991 and placed it in receivership in the hands of the New York Liquidation Bureau. At the time, Curiale said: "The company is currently neither in an insolvent or impaired condition. . . . I have not petitioned the Court to make a finding of insolvency. ELNY is a company well able to meet its current obligations."
New York officials entered into private talks with MetLife, which led to that firm's taking over Executive Life of New York’s lucrative single-premium annuities business. Credit Suisse got the investments side of the business.
Fast forward to April 16, 2012. After 11 days of hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso approved an order of liquidation and a restructuring agreement for ELNY as proposed by the Superintendent of the New York State Department of Financial Services, as ELNY's receiver, and the National Organization of Life and Health Guaranty Funds (NOLHGA), as detailed in Patrick Hindert’s Structured Settlements Blog.
However, “the notion that there is a court supervising this is a joke,” Stone told Insurance News Network. The New York Liquidation Bureau operated with no oversight in the intervening years, during which assets continued to decline. There is an estimated $900 million shortfall in funds owed to some 1,400 Executive Life of New York clients.
Five months after Galasso’s liquidation order, a facilitation plan was published by the NYLB on the Executive Life web site. That plan has resulted in some 18 lawsuits by plan holders, and a class action suit filed by Stone and Salt Lake City law firm Christiansen & Jensen, accusing Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, and his predecessor ELNY rehabilitators, as well as MetLife and Credit Suisse. The class action allegations “provide a critical litany of mismanagement and non-disclosure during the 21 years ELNY's estate was being supervised by these defendants,” Hindert writes.
The case highlights shortfalls in oversight and alleged shortcomings and mismanagement at the NYLB. Its outcome could affect how structured settlement plans are handled in the future.
Stone seems most outraged about the impact the shortfall will have on the lives of his clients, many of whom have severe handicaps or injuries that led to their structured settlements in the first place. He notes that many clients, now at least in their 40s, have been trying to get their settlements back on track for 25 years. Payments under the Executive Life of New York liquidation plan are being managed by the Guaranty Association Benefits Co.
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