TORONTO – After 12 years of fighting Great West Lifeco Inc., Bill Rudd feels vindicated that an Ontario court has awarded payouts to nearly two million Canadians to settle a class-action lawsuit over the financing of an acquisition that dipped into policyholders’ funds.
“I’m 80 now, I started this when I was in my 60s,” said Rudd, a small shareholder and participating policyholder in London Life Insurance Co. and the lead plaintiff in a class-action case against Great West Lifeco and its subsidiaries for violating the Insurance Companies Act.
“I was very pleased that it worked out the way it did. We got the major part of the award that we wanted to get,” he said in a phone interview Monday.
A $455.7-million settlement is set to be distributed amongst 1.8 million Canadians after a judge in London, Ont. ruled Friday that Great-West (TSX:GWO) breached sections of the Insurance Companies Act when it transferred money from the accounts of subsidiaries London Life and Great-West Life Assurance Co. to finance the 1997 takeover of London Insurance Group.
Great West Life has said it will appeal the decision and that several aspects of the decision are “in error.”
The company could not be reached for comment Monday. However, it said in a press release that even if the decision is upheld it is not expected to have a material impact on the capital position of the companies.
Rudd led the case on behalf of policyholders after reviewing London Life’s 1997 annual report and noticing that the company had transferred $180 million from participating policyholders to help fund the buyout.
He stood up at the company’s annual general meeting in 1998 to voice his concerns to the insurance company’s executive.
“I told them what you’re doing is illegal, because the Insurance Act protects (participating) policyholders from arbitrary transfer of funds like that,” he said in an interview Monday from his home in London, Ont.
With the help of his lawyer, Rudd launched the class action suit in 1998, and credits the type of collective action for allowing average Canadians to take on big corporations.
“Class-action suits allow a small guy, client, customer, whatever to take the big corporations to court because you certainly can’t afford to go to court, maybe lose and be required to pay for the Bay street lawyers that these big companies can hire,” he said.
After a 45-day trial in London, Ont., Justice Johanne Morissette ordered Great-West Life, which is controlled by Montreal giant Power Financial Corp. (TSX:PWF), to pay $372 million to policyholders of London Life and $84 million to those of Great West Life.
Rudd—and all other Canadians who held a participating life insurance policy of London Life Insurance Co. or The Great-West Life Assurance Co. between 1997 and the judgement issued Friday— will be eligible for the one-time dividend if the ruling holds up on an expected appeal.
Depending on the type of policy and how much was invested, the amount each policyholder receives could vary from as little as $50 to as much as $6000, but the average will be about $300 each, said a source familiar with the case who did not want to be named as it is still before the courts.
According to the terms of the judgement, a litigation trust is to be set up and overseen by three trustees who will distribute the assets in the trust as dividends.
Great West Life now has 120 days to submit a plan laying out how it will go about paying the policyholders.
Rudd, who sat at the trial day in and day out for months, admits he fell asleep in court from time to time, but believes the suit was worth the time because it will go some way in requiring large companies to respect their stakeholders.
“I would hope that insurance companies will treat participating policy owners with due respect,” he said.
The decision dismissed the claim that the Great West and London Life board of directors, including Power Corp. chairman and co-CEO Paul Desmarais Jr., should bear any responsibility for the actions, ruling that legal and regulatory compliance is the responsibility of management, not board members.
Shares in Great West Life slipped 37 cents, or 1.5 per cent, to $24.89 Monday on the Toronto Stock Exchange. Power Financial shares were up eight cents to $29.03 on the TSX.