³Executive Life seizure stalls pension lawsuit²
By JOANNE WOJCIK
April 22, 1991

	Pacific Lumber Co. retirees are seeking to restart stalled settlement talks in 
their lawsuit against Executive Life Insurance Co. and Pacific's owner over the 
termination of Pacific's pension plan, says an attorney for the retirees.

 	Those talks were put on hold when California regulators seized Executive Life 
earlier this month.

 	The case centers on the 1986 leveraged buyout of Pacific Lumber by Maxxam Inc. 
of Los Angeles.

 	Maxxam financed the deal by issuing junk bonds, one-third of which were 
purchased by Executive Life's parent, First Executive Corp.

 	Maxxam then terminated the Pacific Lumber Retirement Plan, recapturing more 
than $50 million of excess pension assets to pay off its debt. It then purchased 
an Executive Life group annuity contract to provide promised benefits.

 	Ten Pacific Lumber retirees and retirees' beneficiaries filed suit on behalf of 
2,500 present and future retirees against Maxxam and Executive Life in U.S. 
District Court in San Francisco in 1989. The suit alleges various breaches of the 
Employee Retirement Income Security Act in connection with the selection of 
Executive Life as the annuity writer, explained plaintiffs¹ attorney Jeffrey 
Lewis, a partner with Sigman & Lewis in Oakland.

 	Executive Life was not a suitable annuity writer because its stability was 
questionable and because it ³was the single biggest purchaser of the junk bonds 
used to finance Maxxam's leveraged buyout of Pacific Lumber,² Mr. Lewis said.

 	The selection appeared to be a ³reward² for Executive Life's part in the 
buyout, he alleged.

 	The retirees in their lawsuit ask that a major insurer assume Executive Life's 
Pacific Lumber annuity obligations and that Maxxam make up any shortfall in the 
amount of Executive Life assets that eventually are transferred to the new 
insurer to pay the retirees¹ pension benefits, Mr. Lewis explained.

 	Settlement talks between the plaintiffs, Pacific Lumber, Maxxam and Executive 
Life were interrupted by the Executive Life takeover.

 	California Insurance Commissioner John Garamendi said he acted out of concern 
over the insurer's deteriorating junk bond holdings (BI, April 15). Junk bonds 
account for $6.4 billion of the insurer's $10.1 billion of assets, he said.

 	³We were trying to work out a plan² that would meet the retirees¹ demands, Mr. 
Lewis said.

 	³A couple of major carriers were interested² and were awaiting delivery of a 
computer tape from Executive Life that would give an accurate picture of the size 
of its Pacific Lumber annuity obligation, he said.

 	That delivery was held up by the conservation order.

 	In response, Mr. Lewis has written to Insurance Department attorneys and Mr. 
Garamendi asking the regulators to permit the settlement talks to continue.

 	³The transfer may even be beneficial to Executive Life,² he said, because it 
would remove from its books the obligations to Pacific Lumber retirees. Between 
$30 million and $40 million is scheduled to be paid to 2,500 current and future 
retirees.

 	Mr. Garamendi said last week that he is confident that the state life insurance 
guaranty fund will cover Executive Life policyholders and annuitants, but Mr. 
Lewis is skeptical.

 	³We note with concern the apparent inconsistency between the conservation 
order, which prohibits further payments of annuities except in individual 
hardship cases, and your public statements, which assert that payments will 
continue,² Mr. Lewis said in his letter to the commissioner.

 	However, late last week the commissioner announced he would ask a court to 
modify the conservatorship order so Executive Life can continue paying its 
annuity obligations in full to retirees.

 	And, Maxxam announced it would make up any shortfall in those payments to 
Pacific Life retirees in May and June.

 	Meanwhile, two lawsuits seeking class-action status have been filed in New York 
and California against First Executive on behalf of policyholders.

 	The suits accuse First Executive directors of misleading policyholders by not 
disclosing that the company was heavily invested in junkbonds. The lawsuits seek 
an unspecified amount of damages.

 	Attorneys for the plaintiffs would not comment on the lawsuits.

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