NU Online News Service, June 15, 3:09 p.m.EDT

California Insurance Commissioner Steve Poizner has announced asettlement of four lawsuits that provides the liquidation estate offailed workers' compensation insurer Fremont Indemnity Company withup to $37.3 million.

The arrangement, disclosed Friday, will permit four formerdirectors and officers, who were sued by the California InsuranceDepartment over actions that allegedly led to Fremont's collapse,to pursue claims for retirement monies.

Those covered include former Fremont President Louis J. Rampino,Chairman James A. McIntyre, and directors William R. Bailey andRaymond J. Meyers. An action brought by former California InsuranceCommissioner John Garamendi had accused them and others ofbreaching their fiduciary duties with a risky underwritingscheme.

Commissioner Poizner said in a statement he was "very pleased tohave obtained this significant recovery–worth tens of millions ofdollars–for Fremont's policyholders, injured worker claimants andcreditors, particularly from a bankrupt enterprise like FremontGeneral."

Fremont, placed in liquidation in 2003, was a national concern,writing more than $800 million in premiums in its final year offull operations. After Fremont was placed into liquidation in 2003,a departmental investigation resulted in four lawsuits being filedto recover money for the benefit of policyholders, injured workerclaimants, and other creditors of Fremont.

Actions were filed against Fremont's parent companies, FremontCompensation Insurance Group (an intermediate holding company) andFremont General Corporation, Fremont's ultimate parent company,over tax sharing arrangements among the companies

The suit against former directors and officers alleged theyengaged in a practice known as "net line underwriting" which wasintended to benefit Fremont at the expense of its reinsurers. Thelawsuit alleged that the scheme resulted in the reinsurersasserting claims for rescission of multiple valuable reinsurancetreaties, which ultimately had to be settled at a loss toFremont.

Another suit involved a dispute over the ownership of acorporate fine art collection, including prints by noted naturephotographer Ansel Adams, valued at more than $4 million.

In addition to its failed insurance company operations, FremontGeneral was also the owner of a subprime mortgage lender, FremontInvestment & Loan (now known as Fremont RestructuringCorporation).

The department, in a statement, said failure of FremontInvestment & Loan in 2008 resulted in Fremont General filingfor bankruptcy protection in June 2008.

As a result of the settlement, the department said there willbe:

o Immediate cash payment of $5 million from FremontRestructuring Corporation.

o Immediate receipt of $4.1 million in proceeds from the sale ofthe art collection.

o Control over the equity interest in Fremont Life InsuranceCompany, currently valued at approximately $1.2 million.

o Two allowed general creditor claims against the FremontGeneral bankruptcy estate in the total face amount of $40 million,on which the Fremont liquidation estate is entitled to receive upto, and expects to receive prior to the end of the year,distributions of $27 million.

The settlement also provides for the preservation of more than$600 million in beneficial tax attributes (so called "net operatingloss carry forwards" or "NOLs") for the benefit of Fremont. Thiswill assist the commissioner in protecting Fremont from exposure tofederal income tax liabilities for the duration of the liquidationprocess, the department said.

The settlement agreement resolves employment and retirementbenefit plan claims against Fremont General by the directors andofficers.

According to the commissioner's statement, this portion of thesettlement had no negative impact on the amount of recovery ofbenefits due to Fremont.

Federal ERISA law shields the assets of retirement benefit plansfrom being seized as part of an insurance liquidation proceeding,like the Fremont liquidation. Disputes over the retirement planbenefits are strictly between Fremont General (as the plan sponsor)and the individual participants, said Mr. Poizner.