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GOLDEN EAGLE FIGHT OVER

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SAN FRANCISCO-Liberty Mutual Insurance Co. and California regulators have officially won the final round in the fight with American International Group Inc. over Golden Eagle Insurance Co.

San Francisco Superior Court Judge William Cahill issued a final order Aug. 4 approving Liberty Mutual's rehabilitation plan for San Diego-based Golden Eagle.

"Liberty Mutual is delighted Judge Cahill has approved the rehabilitation plan for Golden Eagle," said Fred Marziano, senior vp and leader of Liberty Mutual's Golden Eagle transition team.

"His decision concludes what has been a fair, open and orderly process conducted by the Department of Insurance and California's court system."

While AIG acknowledged its defeat, the New York-based insurer said it plans to continue to support state legislation that would alter California's insolvency law.

The Insurance Department in January seized Golden Eagle, one of California's largest workers compensation insurers. The department then initiated a

bidding process for takeover of the insurer's business.

Regulators initially picked AIG as the winning bidder, but a Judge Cahill in June chose a revised bid from Liberty Mutual instead.

AIG appealed his decision, charging that Liberty Mutual won by negotiating a back-door settlement of litigation between Golden Eagle owner John C. Mabee and the Insurance Department (BI, July 14).

The Court of Appeal rejected AIG's petition without further comment (BI, July 28).

Meanwhile, an Insurance Department investigation into AIG's business practices is continuing, department sources say.

The department said it was looking into alleged efforts by AIG "to deliberately spread false statements to third parties in an effort to create anxiety and start problems for the new Golden Eagle company" (BI, July 21).

AIG said one of those assertions apparently was put to rest in the order approving the rehabilitation plan.

"AIG is pleased that Judge Cahill's order seeks to eliminate the 'bar date' for claims covered under Golden Eagle policies, protecting the policyholders from a deadline that would have barred their valid claims. This was an issue that AIG had pressed vigorously during the legal proceedings," the company said in a statement issued Aug. 5.

However, the bar date never applied to claims for coverage under Golden Eagle policies, but only to non-insurance claims, such as general creditor and bad faith claims, according to deputy conservator Karl L. Rubinstein.

Still, AIG attorney Roxani M. Gillespie insists that under the original rehabilitation proposal, policyholders that did not file claims by Feb. 27, 1998, risked the loss of potential benefits.

While Judge Cahill's decision clarified the protections available to policyholders and claimants with regards to the Golden Eagle rehabilitation, "the judge's decision left unanswered several concerns about policyholders', claimants', and creditors' rights" in other insolvencies, said Ms. Gillespie, an attorney with Buchalter, Fields, Nemer & Younger in San Francisco and a former California insurance commissioner.

"That is why AIG plans to continue supporting the work of the California Legislature," she said. "We believe that the system malfunctioned in the Golden Eagle case, and confidence in the process for rehabilitating insolvent insurers needs to be restored."

Specifically, AIG is backing S.B. 1042, introduced by State Sen. Patrick Johnston and co-authored by Assemblywoman Liz Figueroa, that would, among other things, amend California's insolvency law to forbid a liquidator from setting a claims bar date shorter than 10 years from notice of a liquidation. The bill also would bar owners of insolvent insurers from receiving any compensation or other benefit until all claimants and creditors are paid in full.

This second provision was triggered by AIG's allegations that Mr. Mabee would profit from the deal with Liberty Mutual.

Under the rehabilitation plan approved by the court, Liberty Mutual will pay Mr. Mabee $20 million for an option to buy his Golden Eagle shares. Of this amount, Mr. Mabee will pledge $10 million to secure Golden Eagle's reinsurance recoverables from Mesa Reinsurance Co. Ltd., which Mr. Mabee also owns.

The option allows Liberty Mutual to buy Mr. Mabee's shares for $375 million. But regulators doubt there will be enough money left in the company after claims are paid to tempt Liberty to exercise the option.

The bill, which the Assembly Insurance Committee has approved, is scheduled for a hearing Aug. 20 before the Assembly Appropriations Committee.