Los Angeles - Several parties involved in litigation stemming from the failed Executive Life Insurance Co. have tentatively agreed to a settlement, California Insurance Commissioner John Garamendi said this week.

The parties, including trustees of taxable municipal bonds backed by Executive Life, "are near agreement on a framework for the resolution of substantially all remaining legal disputes," statement issued on Tuesday by Garamendi's office says.

Los Angeles County Superior Court Judge Kurt Lewin, who is overseeing the insurance commissioner's rehabilitation of Executive Life, will meet with interested parties this morning to set hearing dates on the tentative pact, a lawyer for Garamendi said yesterday.

Today's court hearing is "procedural in nature," however, and future hearings could become moot if the proposed settlement agreement fails to be enacted, said Peter J. Busch, a director with Garamendi's outside legal counsel, San Francisco-based Howard Rice Nemerovski Canady Robertson Falk & Rabkin.

Underscoring the fragile nature of the parties' plan, Busch said he would have no comment "beyond the release," a reference to the Garamendi statement. Documentation of the settlement framework has not been completed, and "many conditions must be met before all parties will be bound," the release says.

The proposed agreement depends on approval by Lewin and other California courts. But, if a settlement falls apart and litigation proceeds, the statement says the already-approved implementation of the Executive Life rehabilitation plan would continue.

In addition to Garamendi and trustees of taxable municipal bonds backed by Executive Life guaranteed investment contracts, a third party agreeing to end litigation is Aurora National Life Assurance Co.

Aurora is a new company controlled by a French investor group led by Mutuelle Assurance Artisanale de France and one-third owned by Los Angeles-based Sun America Inc.

The Garamendi statement says the proposed settlement would eliminate "substantially all remaining litigation relating to the plan, including the dispute over the priority of funding agreements issued after 1988 and other issues involving the underwriters for the 1986 muni-GIC bonds."

Under the proposed settlement framework, muni-GIC indenture trustees would participate in Garamendi's rehabilitation plan "as modified in connection with the settlement, including acceptance of restructured contracts and their assumption and reinsurance by Aurora," the statement says.

The muni-GIC holders "would receive essentially the terms commonly known as the Soros proposal" suggested in August by Soros Fund Management, a principal investment adviser to two muni-GIC holders, and by Aurora, the statement says. A Soros Fund press release at that time urged a settlement rather than "a lengthy appeal process."

The Garamendi statement says muni-GIC holders would receive "a special settlement amount equal to that offered to other settling policyholders" and "an opportunity for bifurcation" of their Executive Life contract rights. Bifurcation refers to a Soros proposal to create two separately tradable instruments which reflect two components backing the bonds: the GIC itself, and an interest in several liquidating trusts.

The settlement would provide muni-GIC holders "certain rights to put a portion of their contracts to Aurora at a price adjusted for changes in interest rates from the Sept. 3, 1993, plan closing to the put date."

"In addition, the proposed settlement framework includes items not in the Soros proposal," the statement says. For example, certain institutional policyholders will pay "more than $20 million in additional value" to the muni-GIC holders.

Muni-GIC holders also would receive a substantial portion of legal fees and expenses they have incurred, the statement says.

The proposed settlement is subject to review and approval by the National Organization of Life and Health Insurance Guaranty Associations, several state guaranty associations, Texas Commerce Bank-El Paso, and Group Annuity Participation Protection Association members.

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