The Ontario Court of Appeal has cut the amount Great-West Lifeco Inc. must pay to former London Life Insurance Co. policyholders for illegally using money from their accounts to finance the takeover 14 years ago.
In the class actions Jeffery v. London Life Insurance Co. and McKittrick v. Great-West Life Assurance Co., the appeal court reduced the award given by a trial judge to $220 million, from $390 million. The court upheld the trial judge’s decision that the acquisition of London Life by Great-West failed to comply with generally accepted accounting principles and the Insurance Companies Act.
Two former London Life actuaries, Bill Rudd and Jay Jeffery, and John McKittrick, a Great-West policyholder, sued on behalf of 1.8 million people, accusing the companies of illegally using their funds to help pay for the $2.9-billion acquisition.
The trial judge had concluded that the respondents were entitled to a “reasonable” award compensating for all foregone investment income on the $220 million together with a gross up for taxes. Accordingly, she ordered Great-West Life and London Life to pay approximately $390 million to the participating insurance policy accounts.
At issue on the appeal was the validity of what are referred to as the participating account transactions, whereby $220 million in cash from the PAR accounts was exchanged for “pre-paid expense assets,” which represented the anticipated expense savings to be realized by those accounts over a 25-year period. The $220 million was used to finance approximately 7.5 per cent of the $2.9-billion acquisition price.
Harrison Pensa LLP and Bates Barristers, the London, Ont., lawyers representing the insurance policyholders, said they are happy with the decision and “look forward to resuming the prosecution of all remaining matters to a conclusion before the trial judge in London.”
“We’re continuing to assess the court’s remedial plan and have no present view of how that will work,” says Paul Bates of Bates Barristers. “It’s very complex litigation involving the intricacies of financial services both on the requirements of legislation and the very subtle features of GAAP, and so for that reason there is a high level of complexity and we are mindful of that when we grapple with a case of this kind.”
The 76-page decision issued Nov. 4 by the appeal court provided a detailed overview of the trial judge’s approach to the case, the original trial evidence put forward, and the applicable elements of the Insurance Companies Act.
“We’re assessing the detailed and very thoughtful reasons the court has given and we’re certainly very pleased that the court has sustained a finding of a breach of the act, but the remedial analysis needs careful study,” said Bates. “It’s a complex and lengthy discussion of a new model of how to remedy the wrong, so we need time to assess that very carefully.”
The parties involved will now resume the proceedings before the trial judge to resolve all the other outstanding issues.
“Doing class proceedings requires a lot of staying power due to the complexity and the resources of the defendants and the time it takes to navigate through the court system,” said Bates. “We’re just continuing to reassess what we do and it’s clear we are to re-attend before the trial judge and complete the proceedings.”