Friday, January 13, 2012

(No.185) Class action appeal: London Life & Great-West

In Oct. of 2010 I wrote a column about the class action led by D'Alton 'Bill' Rudd, a former London Life senior executive and a man of principle and conviction. He opposed the use of London participating policyholder funds by Great-West Lifeco (controlled by the Desmarais family) in its Oct. 1997 takeover of London Life.

At the invitation of its editor Joseph Belth I subsequently wrote an article about the case for the Dec. 2010 issue of the American publication INSURANCE FORUM [see below for the footnote references].

My view, one shared by some others with experience in the Canadian life insurance industry and elsewhere, is that Canada's federal insurance regulator -- the Office of the Superintendent of Financial Institutions (OSFI) -- should not have allowed the use of ANY par policyholder funds by Great-West to help finance its takeover of London Life.

The class action finally came to trial in Sept of 2009 and the Oct. 2010 decision awarded $455 million to the par policyholders. London/Great-West appealed the Ontario Superior Court decision in Jeffery v. London Life Insurance Company.

On Nov. 3, 2011 the Ontario Court of Appeal released its decision (ONCA 683) which had the effect of largely negating the financial compensation awarded by the Superior Court judge to the par policyholders while upholding certain aspects of the appealed decision. The judgement ended up cancelling the raiding of the par policy accounts but without upholding the $400+ million payout to the policyholders.

It was at the London Life annual meeting in the spring of 1998 that Bill Rudd rose to speak and began what turned out to be a process that has lasted almost 14 years. He pointed out that what was being done with par funds was illegal under the federal Insurance Companies Act.

It's been a very long slog for those individuals challenging these large financial institutions. A person close to the class action told me that he doubts there will be an appeal, that the Appeal Court decision is a "dog's breakfast and not all clear" and that the Appeal Court made its decision in part on the basis of "some matters not tried" in the Superior Court action.

I would like to have seen in this or in some future legal action:

-- A major attack on the actuarial concept of "policyholders' reasonable expectations" which life insurance companies can and do use to curtail as well as frustrate the promises given to par policyholders by their agents -- at the time the policies are bought -- that they (the par policyholders) will share in the profits of the companies issuing the participating life insurance policies.

-- Some emphasis on the major disconnect between what buyers of participating life insurance policies are told and what the issuing life insurance companies actually do with their promise to share profits via policy dividends. As a former industry colleague of mine says, the "reasonable expectation" fiction invented and controlled by company actuaries, when combined with the absence of any third party involvement to rebalance the equation in the interests of par policyholders, produces mushroom treatment for people buying life insurance.

-- Examination of whether or not a good chance that the courts would override life insurance company directors' discretion to declare dividends would be to force the appropriate members of the life insurance companies' senior management and direction into court in order to cross-examine them about any number of questions revolving around the use and misuse of par funds.

For an illustration of a more conventional, company & regulatory-friendly commentary on the Appeal Court decision see the Nov. 9, 2011 issue of the Financial Institutions Bulletin put out by the Toronto law firm Fasken Martineau. For example, it commented that "the Court of Appeal found that the trial judge was right to conclude that the [par funds] transactions breached the ICA [Insurance Companies Act] but significantly curtailed the remedy granted. ...

" The remedy sought by the plaintiffs [in the class action] and ordered by the trial judge was tantamount to an oppression remedy and was inconsistent with the deliberate decision not to provide an oppression remedy in the ICA. The Court of Appeal found that any remedy had to ensure compliance with the ICA without giving the PAR policyholders a windfall ...."

While it may not be likely, one can still hope that the Ontario Appeals Court decision in this class action is appealed to the Supreme Court of Canada. If it is I think it likely that both the rights of par policyholders generally and a tougher look at OSFI insurance regulation might well be part of the benefit of a Supreme Court ruling.

This whole subject is actually increasing steadily in relevance these days in Canada. The big life insurance companies which demutualized a decade or so ago (London Life was always a stock company and, atypically, always sold a ton of par life) couldn't wait to stop selling par life insurance in order to increase financial benefit to their newly acquired shareholders. However, for several reasons the retail attractiveness of of selling par whole life insurance is being rediscovered, rather like Malcolm Muggeridge -- a longtime atheist -- rediscovering Jesus.

by Alastair Rickard


-- "An Important Court Decision Relating to Rights of Participating Policyholders in Canadian Stock Companies" by Alastair Rickard, INSURANCE FORUM Dec. 2010 (Vol.37, No. 12).

-- "Great-West '0', par polciyholders '1' " on, column No.118, posted Oct.8. 2010.

-- "Names to ponder: Great-West Life, Joseph Belth, Alan Press, Primerica" on, column No.124, posted Nov. 28, 2010.

-- Jesus Rediscovered by Malcolm Muggeridge (1969).





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