Court rules Economical’s mutual policyholders can vote to replace Board
Yesterday, following a three-day hearing in March, Ontario Superior Court Justice John Cavarzan ruled that Economical Mutual Insurance Company’s mutual policyholders can proceed with a vote to replace the company’s current Board of Directors at the insurer’s Annual General Meeting in May.
VC & Co. Advisory Limited, a shareholders rights consulting firm retained by some of Economical’s mutual policyholders, proposed three matters dealing with the removal of current board members, the tenure of board members and amending Economical’s bylaws so that voting be anonymous and conducted by secret ballot and that Economical make available to VC & Co. its list of mutual policyholders.
Economical filed an application in the Court that would block these proposals, citing that they are contrary to the Insurance Companies Act (ICA). It sought declarations to the effect that it is not required to present VC & Co.’s proposals for consideration at its Annual General Meeting on May 26, 2011.
In November 2010, VC & Co. sought the support of 100 of Economical’s mutual policyholders in order to replace the Board and demutualize the property and casualty insurer so it could become a publicly-traded firm and the equity it holds could be accessed.
In December 2010, Economical announced that it would begin the demutualization process itself, based on input from a Special Committee it created.
VC & Co. received the support of 105 of Economical’s mutual policyholders, which would have seen the proposal be presented at the insurer’s annual meeting in May. However, Economical challenged the legality of the proposals.
On April 6, Justice Cavarzan ruled that “the dissident policyholders/VC & Co. are entitled to submit the first and third proposals for consideration at the next annual meeting, as proper proposals within s.147(1) of the ICA.”
The first proposal allows for a vote in which mutual policyholders can decide to remove the current Board of Directors. The other proposal that can be considered at the Annual General Meeting allows for the Board to be replaced with individuals to be nominated by the mutual policyholders.
Justice Cavarzan ruled that the proposal to amend Economical’s bylaw that would permit for a staggered election of directors would violate the ICA and cannot be presented. The current bylaw sees directors retain their position on the board for three years.
VC & Co. had also petitioned for a list of all of Economical’s mutual policyholders be provided to them by the insurer. The court denied this application, citing privacy concerns.
“There is, however, a very real privacy concern here in that, as submitted by Economical, policyholders who potentially stand to gain $1 million on average from a demutualization, may not want their identities revealed to others,” he wrote in his judgment.
“Furthermore, the Economical is subject to the federal Personal Information Protection and Electronic Documents Act {PIPEDA) S.C. 2000, c. 5 to the extent that it collects, uses and discloses personal information in the course of its commercial activities. The name and address information of policyholders constitutes personal information under PIPEDA. Consent of the individual is required before Economical may disclose such information.”
