By JADA LOUTOO Wednesday, March 13 2013
SOME 250 Colonial Life Insurance Company (Trinidad) Limited (Clico) Executive Flexible Premium Annuity (EFPA) policyholders have scored a major victory in the courts and are set to receive 100 percent of the monies contractually owed to them by the insurance giant
The court-directed payout is estimated to be in excess of $300 million, plus interest.
In a landmark ruling yesterday, Justice Joan Charles ruled that the People’s Partnership Government failed to keep a promise made to the EFPA policyholders by the previous PNM administration that they would be paid the full amount due on their Executive Flexible Premium Annuities.
The Government now has to ‘make good’ on the promise made to the EFPA policyholders and put in place suitable arrangements to ensure they receive 100 percent of Clico’s contractual liability to them as well interest of three percent from September 2010 to March 12, 2013, as ordered by the judge.
The lawsuit, which was filed under the name the United Policyholders’ Group (UPG), challenged the decision of the Government to refuse to honour the promise made in 2009 for EFPA policyholders to be fully compensated for their policies.
The UPG was represented by a team of attorneys including Peter Knox QC, Ramesh Lawrence Maharaj SC, Peter Strand, Vijaya Maharaj, and Nyala Badal.
The State was represented by Allan Newman QC, Russell Martineau SC, Kelvin Ramkissoon and Kerry Ann Oliverie.
A 28-day stay of execution has been granted to the State to consider appealing the ruling.
According to the group, the Government had reneged on the policy decision of the previous PNM administration to honour payments to EFPA policyholders. In their application, the group claimed that promises made by the previous administration amounted to a guarantee that policyholders would be paid sums that were held in the cash-strapped conglomerate.
The group also claimed that the Government’s plan was materially different from the initial offer in January 2009, during the Central Bank bailout of Clico.
They contended that to receive the principal balances on their policies over a period of 20 years was unlawful, arguing that they were entitled to get full payment on their policies
The group of EFPA policyholders were among thousands who, in the original plan outlined by former finance minister Winston Dookeran, were told that they would be paid an initial sum of $75,000 and the balance would be paid over 20 years by issuing Government bonds with zero interest rate.
Dookeran’s plan was revised to pay those with investments of $75,000 or under the full value of their investments and a Clico Investment Fund was launched in November, of last year,
with trading for the units of those persons who exchanged their 11 to 20 year bonds for units beginning earlier this year.
The assets underlying the Clico Investment Fund were the insurance company’s ownership of 51.8 million Republic Bank shares, which were transferred to the Government and then to the fund. The policyholders were given the option of converting their 11 to 20 year zero-coupon bonds to the equivalent number of units in the fund at a one-to-one ratio.
The policyholders who did not accept either option, chose instead to take their chances in the courts.
Yesterday, Ramesh Maharaj said the judge’s ruling was of significant importance in public law, since it was the first time that the courts had pronounced on the changing of policies by new administrations.
“Governments now have to be careful how they break promises made by previous governments especially as it relates to the rights of individuals. You cannot change policy because there is a change in regime. There must be continuity in government,” the former attorney general noted.
At the trial, the State’s attorneys argued that to repay all Clico policyholders in full, would put a strain on the economy and have very significant impact on other areas of Government’s expenditure, but the judge said there was no evidence to support this contention.
“The public body must show not only the existence of an overriding policy to justify the breach but also that its response is objectively justified as a proportionate measure in the circumstance,” she said in her 47-page ruling.
She said contrary to the submissions of the Government’s attorneys, the “Government did not take into account that it had made promises to the policyholders or that it was breaking them.”
Charles drew references to statements made by Prime Minister Kamla Persad-Bissessar and Dookeran, which were argued away by attorneys as political exchanges with the Opposition which ought to be disregarded.
But the judge noted that it was incumbent on the Government to justify the breach of the legitimate expectation, adding that no evidence had been adduced to explain or justify why the promise made to the policyholders was not kept.
The judge noted that in the new bailout plan devised by the Government, the policyholders were asked to either give up their rights against the Statutory Fund and Clico and take up the Government’s bailout plan; or stand on their rights.
She said there was no justification of the breach of the policyholders’ legitimate expectation by Government, pointing out that the evidence suggested that the balance sheet deficit of Clico had been reduced to $3.1 billion from $6 billion by August 2011.
“It is clear that by 2011, the circumstances had changed for the better,” she said, adding that the State’s attorneys had failed to show there was material change in circumstance from when the promise was made to the policyholders to when Government was considering if it could not honour the commitment.
“The previous government was aware of all the conditions that were present at the time the promises were made and they had actually been fulfilling those promises up to early 2010,” she noted.
According to Charles, the Government “failed to show that it took into account that it had made promises, was breaking them and that they had to give these promises due weight before resiling from them.”
“It is clear that at this stage that the Government’s bailout plan is almost complete. Over 92 percent of the EFPA and other short-term investment product holders have adopted the plan and have chose to assign their rights in the Statutory Fund to the Government,” the judge said.
She further noted that from the evidence which was presented before her, as at November 14, 2012, some 14,271 persons or 91.4 percent of persons holding short term investments products (STIPs) with Clico signed on and accepted the revised payout plan.
Of this figure, scores of those were initially part of the UPG’s High Court action. The judge noted that the cost of paying out the remaining policyholders what they were promised, “would be significantly reduced.”
“It is expected that the liabilities to the remaining claimants would be but a small portion of the obligation undertaken by the Government for the other EFPA policyholders,” she said, emphasising that only those who pursued the court action would benefit from her order and not the EFPA holders at large.
At the trial, attorneys for the State put the cost of the bailout at $19 billion. Charles noted that there were policyholders who took up the payment offer and assigned their rights to the Clico Statutory Fund to the Government in exchange for the settlement of their claim.
She also noted that the bailout plan contemplated that the Government will recover monies expended by the sale of some of Clico’s assets as well as recovery of debts owed to the insurance company.
“In the circumstances, I hold that the claimants are the beneficiaries of legitimate expectations engendered by representations made to them by, or on behalf of, the Government that the Government would ensure that their funds in Clico would be safe and that it would guarantee repayment of all monies due to them; and the Government would make good the deficit in the Statutory Fund,” Charles held.
Although at the initial hearing of the lawsuit the UPG’s claim was revealed to be in excess of $350 million, a significant number of policyholders took up Government’s payout offers.
Charles’ ruling followed that of a similar ruling by another judge in October 2011, who ordered Clico to pay six EFPA policyholders more than $58.7 million, plus accrued interest.
Similar lawsuits filed by other EFPA policyholders were subsequently withdrawn following the setting up of the Clico Investment Fund (NEL 2).
Pull quote: “Government did not take into account that it had made promises to the policyholders or that it was breaking them.”