California's insurance commissioner this week attempted to have the state Supreme Court overturn last week's decision on Executive Life Insurance Co.'s municipal guaranteed investment contracts, but Justice Malcolm Lucas denied the motion.
The refusal to acknowledge Commissioner John Garamendi's petition sends the appeal down to the state's Second District Court of Appeals, which is scheduled to hear the appellate motion within the next two weeks.
Janice Harwell, a partner with Thelen Marrin, Johnson & Bridges and counsel for Texas Commerce Bank, said the supreme court motion appears to be an extension of political maneuvering that has characterized the trial. Further, the will add to the already hefty legal expenses incurred by the case.
"At some point, I thought the politics would finally disappear," Ms. Harwell said. "The people he is supposedly protecting are taken care of" by the state guarantee funds. "There's no economic justification for this."
The strategy of appealing to the California high court did, however, result in a temporary denial of interest payments to bondholders. The supreme court, in the process of denying the trial, granted Mr. Garamendi a stay of disbursing interest payments due to bondholders of $1.93 billion in GIC-backed municipals.
As a result, interest payments on the bonds will be suspended until the state appeals court can hear the case, putting the bonds in limbo for about 10 days, according to lawyers representing trustee banks.
A spokesman for Mr. Garamendi said the insurance commission was "happy" about the stay on interest payments. "It helps protect the department's position on this," he said.
When Judge Kurt Lewin of the Los Angeles Superior Court decided in favor of the bondholders last week, trustee lawyers argued that interest payments on the bonds -- suspended since Executive Life was seized by the insurance commission in April -- should now be made. Judge Lewin, in deciding that the GICs fell into the state's claimant Class 5, agreed.
Throughout the seven-month conservatorship of Executive Life, Mr. Garamendi has made interest payments to pension GICs and annuitants according to the original schedules, although principal payments and policy surrenders have been disallowed.
Ms. Harwell said the municipal bondholders' case appears just as strong at the appellate level as it did before Judge Lewin. "We will get there," she said.