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This article was published 3/10/2010 (3303 days ago), so information in it may no longer be current.
TORONTO — A group of disgruntled life insurance policyholders has won a class-action lawsuit against Great-West Life Assurance Co. and London Life Insurance Co., with an Ontario court ruling Friday the companies must pay $455.7 million in one of the largest contested class-action payouts to date in Canada.
The suit originates from parent Great-West Lifeco Inc.'s 1997 takeover of London Insurance Group Inc. for $2.9 billion, outbidding Royal Bank of Canada at the time.
The plaintiffs had claimed in the 45-day trial in London, Ont. that the two insurance companies transferred $220 million from participating accounts with London Life and Great-West Life to help finance about 7.5 per cent of the takeover. The cash was replaced by an accounting instrument called a "prepaid expense asset" (PPEA) — but the cash was never repaid.
Participating accounts are special accounts in which policyholders can participate in the profits of the insurance company. Par policyholders typically pay premiums at least two to three times higher than non-par holders.
In her ruling dated Oct. 1, Ontario Superior Court Justice Johanne Morissette declared the actions of Great-West and London Life as unlawful and in violation of the Insurance Companies Act.
"By creating the (participating account transactions) the defendants have done indirectly what was prohibited from being done directly," the ruling said. "The PPEA could be characterized as 'creative accounting,' however they are not assets recognized by GAAP (Generally Accepted Accounting Principles)."
As a result, Morissette has ordered the two companies repay the par accounts the $220 million taken, plus $172.7 million in foregone investment income and $63 million of gross-up for taxes. This works out to $372.2 million to the London Life account and $83.5 million to the Great-West Life account.
In a statement, Great-West Lifeco said it agreed with part of the ruling, but will appeal as there were "significant aspects of the decision" the company believed to be in error.
"The decision, if sustained on appeal, is not expected to have a material impact on the capital position of the companies," Great-West said. "The acquisition of London Life nearly 13 years ago and its integration into the Great-West group of companies has been a marked success."
Great-West Lifeco, its subsidiary Great-West Life Assurance and London Life Insurance were the named defendants. London Insurance Group, the parent of London Life Insurance, was not.
All fall under the umbrella of Montreal-based Power Corp. of Canada, one of Canada's largest diversified management and holding companies with a market cap of more than $12 billion.
About 1.8 million Canadians, both current and former holders of participating account policies from November 1997 to the present, participated in the class-action suit.
To help facilitate the 1997 takeover, $180 million was taken from the London Life participating account and $40 million from the corresponding Great-West Life account and moved into shareholder accounts. London Life then loaned that $180 million to Great-West Life.
Within a few months of the transaction in November 1997, the loan was repaid with interest. However, the participating account was not repaid, the ruling said.
Lawyers with Harrison Pensa LLP and Bates Barristers represented James Jeffery, D'Alton Rudd and John McKittrick on behalf of the class.
Rudd and Jeffery are both actuaries formerly employed by London Life until 1982 and 1987 respectively.
— Postmedia News