Economical Mutual Insurance Company announced that its mutual policyholders had rejected a dissident proposal from a group of its mutual policyholders led by VC & Co. Advisory Limited, a Toronto-based advisory firm, to replace Economical's board of directors at its annual and special meeting of policyholders held on May 26, 2011.
The process leading to the proxy contest began in early November 2010 when VC&Co. began discussions with Economical's mutual policyholders regarding the merits of replacing its board of directors so as to enhance value for mutual policyholders including through a demutualization of Economical. On December 14, 2010, approximately one month after VC&Co.
began advocating for demutualization, the incumbent board of Economical announced that it would itself develop and execute a plan to demutualize Economical and provide demutualization benefits to its mutual policyholders. On December 30, 2010, policyholder proposals signed by approximately 10 per cent of Economical's mutual policyholders were submitted to Economical seeking to replace Economical's board of directors at its next policyholders' meeting.
Economical brought an action in the Ontario Superior Court of Justice in Kitchener seeking declarations on a variety of grounds that each of the policyholder proposals 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 next policyholder meeting for a vote (to remove the then-current board and to replace it with a new board). The Court ruled that a third policyholder proposal to amend Economical's by-law so as to eliminate the staggered election of directors was not required to be placed before policyholders for a vote.
As part of the April 6, 2011, ruling, the Court rejected, in whole, a cross-application from the mutual policyholders seeking procedural changes in connection with the next policyholder meeting, including an independent Chair, procedures around voting and the provision of a list of all mutual policyholders to the dissidents. The portion of this ruling dealing with voting procedures was appealed by the mutual policyholders to the Ontario Court of Appeal, and this appeal was subsequently settled on the basis of an agreed upon voting process. The mutual policyholders also brought a subsequent proceeding in the Ontario Superior Court of Justice in Toronto seeking to require Economical to distribute “fight letters” from the dissidents to all mutual policyholders, which the Court ordered should be distributed.
The proxy contest, which ultimately revolved around which board of directors should lead the demutualization process, culminated in 77 per cent of the votes cast at the meeting being in favour of the incumbent board of directors. Economical's incumbent board has committed to move forward with demutualization, and 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.
Economical was represented by Miller Thomson LLP with a team including Robert Forbes, Jay Hoffman, Ormonde Benson, Melissa Ghislanzoni and Stephen Oh (Toronto business law); Ian Wismer, Eric Schneider and Amanda Finch (Waterloo business law); John Chapman, Douglas Best and Nafisah Chowdhury (Toronto litigation) and Richard Trafford and Judy Byrne (Waterloo litigation).
VC&Co. and the mutual policyholder group were represented by McCarthy Tétrault LLP with a team including David Woollcombe (business law) and Paul Steep, Elder Marques and Shane D'Souza (litigation).