Canadian Underwriter

Supreme Court dismisses application to appeal Ontario class action lawsuit from former insurance policyholder-owners over demutualization

March 18, 2015   by Canadian Underwriter

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Two weeks after the federal government published draft regulations on the demutualization of property & casualty insurance companies, the Supreme Court of Canada has dismissed an application, from plaintiffs who unsuccessfully sued an insurer over its demutualization, for leave to appeal.

The Supreme Court of Canada dismissed an application from former Manulife policyholders, for leave to appeal a court ruling where a central question was rights of participating policyholders of a mutual insurance company that demutualizesLast year, the Court of Appeal for Ontario upheld a 2012 decision by the Ontario Superior Court of Justice, largely in favour of Manufacturer’s Life Insurance Company, which demutualized in 1999 and was the later the defendant in a class action lawsuit. Though it is not a P&C firm, a “central question” in the lawsuit against Manulife was the “rights of participating policyholders of a mutual insurance company,” the trial judge wrote.

“Such policyholders were described in various documents, including documents published by Manulife, as the owners of the company,” Mr. Justice Frank Newbould wrote in his 2012 ruling.

Manulife was sued by Richard Mandeville, Wismar Greaves, Marcus Jordan and Anthony Bowen. The four plaintiffs represented about 8,000 people whose Manulife policies were transferred in 1996 to Life of Barbados. Their lawsuit was dismissed in 2012 – as was their appeal to the Court of Appeal for Ontario. In September, 2014, Mandeville and his co-plaintiffs filed for leave to appeal with the Supreme Court of Canada. They also filed for a motion to extend the time to file and to serve the application for leave to appeal.

Related: Draft regulations for demutualization of p&c companies released

On March 12, 2015, the Supreme Court of Canada announced it granted the extension of time to serve and file the application for leave to appeal, but dismissed with costs their leave to appeal the ruling, by the Court of Appeal for Ontario, released May 22, 2014.

In 1996, Manulife had sold its operations in Barbados, five years after the federal government allowed life insurers to demutualize. Manulife announced its intent to demutualize in 1997, two years before it completed its demutualization. Manufacturer’s Life, which had mutualized in 1958, is now owned by Manulife Financial Corp., which is publicly traded.

“When Manulife demutualized, its participating policyholders at the time were paid the value of Manulife in shares or cash in the amount of $9 billion,” Justice Newbould wrote Aug. 1, 2012 of his decision.

Canada does not currently have regulations in place for the demutualization of P&C insurers, but it published draft regulations Feb. 28 in the Canada Gazette.

Those regulations were published nearly a year after the ruling Conservatives announced, in the 2014-15 budget document, that they “would develop and consult on a proposed P&C demutualization framework that would ensure the fair and equitable treatment of policyholders and establish an orderly and transparent process for demutualizing,” according to a regulatory impact analysis statement published Feb. 28.

“The federally regulated mutual P&C sector is narrow and consists of seven companies, most of which operate rurally and regionally,” the government stated Feb. 28 in its regulatory impact analysis statement. “They are Wawanesa Mutual, Economical Insurance, Gore Mutual, Portage La Prairie Mutual, North Waterloo Farmers Mutual, Saskatchewan Mutual, and The Kings Mutual.”

Related: Liberal, NDP politicians say government’s intentions on demutualization are unclear

Wawanesa and Economical, the feds note, “rank among the top 10 largest P&C insurers in Canada, each having over $1 billion in equity as of June 2014.”

In the case of Mandeville vs. Manufacturers Life, the parties disagreed on the plaintiffs’ ownership rights, in Manulife, at the time of the sale, of its business in Barbados, to Life of Barbados (LOB).

“Their negligence claim was founded on their allegation that Manulife knew it was likely going to demutualize when it transferred its Barbados business to LOB and that it ought to have structured the transfer in a way that protected or preserved the class members’ rights to share in the value of Manulife on demutualization,” wrote Madam Justice Eileen Gillese of the Court of Appeal for Ontario in 2014.

Mandeville and his co-plaintiffs accepted that the rights of the Barbados policyholders “were extinguished by the sanction of the Supervisor of Insurance in Barbados, but contend that Manulife was obliged before taking the steps leading to that sanction to take steps to protect the rights of the plaintiffs,” Justice Newbould wrote in 2012.

But Justice Newbould dismissed the lawsuit based on his finding that Manulife had no duty of care, to the Barbados policyholders, “to take steps at the time of the transfer to LOB to enable them to participate in the distribution of Manulife’s value on a future demutualization.”

But he added that if Manulife did have a duty of care to protect the Barbados policyholders’ rights to participate in a future demutualization, then Manulife “did not take reasonable steps to protect those rights and breached the standard of care required.”

Had he found Manulife liable, “the trial judge would have ordered Manulife to pay damages of approximately $82 million, plus interest,” Justice Gillese wrote in 2014.

The Court of Appeal for Ontario found that members of the class represented by the Mandeville and his four co-plaintiffs “had no legally recognized right, claim or interest to share in the value of Manulife on a future demutualization,” Justice Gillese wrote. “At most, they had a hope or mere expectancy that if and when Manulife could and did demutualize, they would still be participating policyholders and therefore have a right to share in that value.”

The other two appeal court judges hearing the case – Chief Justice George Strathy and Mr. Justice Robert Blair – agreed.