Class Action Lawsuit Against Canadian Insurance Company Succeeds

It looks similar to a cliché scene from a b-list movie. A kindly, eldery man challenges an illegal corporate action by standing up and protesting at the company's annual meeting.

In 1998, however, Bill rudd did just this. The business involved was London Life, a big insurance company, where Rudd had both stock and a policy. As he was reviewing the company's annual report, he discovered something curious.

A merger with another company, Great West Life, was the rationale behind London Life's decision to transfer about $180 million from policyholder accounts. He decided to challenge the decision at London Life's annual meeting, because he thought it was against the law.

The two insurance giants, however, argued that they had given away pre-paid expense assets which reimbursed policyholders for their loses. This did not calm policyholders, because the PPEAs were never converted into any real financial resources.

A grueling, twelve year legal wreslting match ensued. After getting in touch with his lawyer, Rudd filed a class action against both insurance companies. The legal battle lasted for years, with neither party showing any desire to give in and settle. Recently the case was heard by Justice Johanne Morissette in a 45 day hearing.

This time the policyholders won the day. The court ruled that for the insurance companies to dip into policyholder accounts to fund a merger, was quite illegal. Power Financial Corp, the owner of Great Life West, is being ordered to pay policyholders of London life $372 million and Great West Life $84 million. 1.8 million Canadians will be getting a total of $455.7 million.

Although some commentators are doubtful, both companies say that their capital positions will not be affected by the payout. The court's judgment is set to be appealed by Great West Life, who is claiming that several components of the decision are in error. Of course, both corporations are happy that the court did not award the $2 to $3 billion Rudd's lawyers were seeking from the class action lawsuit.

Sometimes it is the biggest, most profitable businesses that have the most to fear from class actions, and the highest chance of being hit with one. Investors in the UK should keep this in mind if they are considering buying shares in companies across the pond.