Transactions & Cases Detail
dissident mutual policyholders win applications regarding Economical Mutual Insurance Company proxy contest
May 26, 2011
McCarthy Tétrault LLP represented a group of dissident mutual policyholders of Economical Mutual Insurance Company, a property and casualty insurer, in relation to a proxy contest. The dissident group, which was coordinated by VC&Co. Advisory Limited and was made up of more than 10% of mutual policyholders, sought to promote the demutualization of the company and to replace Economical’s board of directors at a Special and Annual Meeting set for May 2011. In response to the dissident policyholder proposals, not only did Economical resist the substance of the policyholder proposals, but it launched a court proceeding claiming that they were invalid under the Insurance Companies Act (Canada) and therefore not required to be placed before mutual policyholders for a vote. On April 6, 2011, the Court rejected Economical’s arguments and held that two of the three policyholder proposals were valid and were required to be placed before policyholders at the Special and Annual Meeting set for May 2011 (Andrus v. Economical Mutual Insurance Company, decision of Cavarzan J.,  O.J. No. 1682, 2011 CarswellOnt 2298, 84 B.L.R. (4th) 289, 98 C.C.L.I. (4th) 98).
McCarthy Tétrault LLP sought two forms of procedural protections on behalf of the dissident policyholders. First, in conjunction with the proceeding initiated by Economical, the dissident policyholders sought various procedural protections in connection with the Special and Annual Meeting, including an independent Chair, procedures around voting and the production of a list of all mutual policyholders. Although dismissed by the Court, this portion of the ruling was appealed by the dissident policyholders to the Ontario Court of Appeal and subsequently settled on the basis of an agreed upon voting process. Second, the dissident policyholders also brought a subsequent proceeding on the Commercial List of the Superior Court of Justice in Toronto seeking to require Economical to distribute proxy solicitation material from the dissidents to all mutual policyholders, to ensure that the policyholders could make an informed choice at the meeting. The Court ordered all of the relief that had been sought, over Economical’s objection (Laumann v. Economical Mutual Insurance Company, decision of Wilton-Siegel J.,  O.J. No. 2124, 2011 CarswellOnt 2811, 98 C.C.L.I. (4th) 74).
In advance of the vote, Economical's board announced that it would itself develop and execute a plan to demutualize Economical and provide demutualization benefits to its mutual policyholders. The ultimate vote at the Special and Annual Meeting meeting was in favour of the incumbent board members. Economical’s incumbent board has committed to move forward with demutualization and has indicated that it will bring a demutualization proposal back for consideration by Economical’s mutual policyholders after new regulations to permit the demutualization are developed. No property and casualty insurer has demutualized under the federal Insurance Companies Act to date.