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A disaffected London Life Insurance Co. customer, in an apparently unprecedented move, has gone to court to try to recover $180-million she alleges was wrongfully removed from her and other policy holders' accounts when Great-West Lifeco Inc. took over the company in 1997.

In a lawsuit filed in Ontario against London Life, Great-West and two related companies, policy holder Dianna Holmes, the daughter of a controversial insurance activist, contends that Great-West contravened the Insurance Companies Act by transferring these funds to help defray some of the costs of its $2.9-billion acquisition.

In a statement of claim dated last Dec. 31, Ms. Holmes' Toronto lawyer, Michael Deverett, is asking the court to certify the lawsuit as a class action on behalf of the estimated one million so-called participating or "par" policy holders on the books of London, Ont.-based London Life at the time of the takeover.

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The suit also seeks $360-million in punitive damages -- plus legal costs -- against the insurers, arguing that they acted in "bad faith, in breach of their duties or in breach of trust" and that such conduct needs to be deterred by "a fine that is more than a licence fee."

None of the allegations has been proved in court and the companies have not yet filed a statement of defence.

However, Great-West spokeswoman Marlene Klassen said yesterday that the Winnipeg-based company thinks the suit is without merit and "will defend it vigorously."

Great-West is "completely satisfied" that the financing arrangement was fair to policy holders, Ms. Klassen said. She added that this was the conclusion of London Life's and Great-West's own appointed actuaries, as well as of two outside actuarial consultants.

One of the consultants was retained at the request of the Office of the Superintendent of Financial Institutions, the insurers' federal regulator, as part of the process it followed in approving the takeover, Ms. Klassen said.

However, sources familiar with the transfer of the $180-million to Great-West say it "raised eyebrows" inside London Life at the time.

"There was a controversy about that internally," said one former London Life executive, who is not connected with the current legal action. "Surpluses and par funds have been a huge issue in terms of whose money it is. The predator company always feels it's theirs, but the policy holders always feel it's theirs."

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Still, although there have been a number of court cases involving companies seeking to dip into their employee pension-fund surpluses, both this source and Mr. Deverett said they are unaware of any other case in which a Canadian life insurer has been sued over its handling of par account funds.

Ms. Klassen also said there is a "legal issue" as to whether the lawsuit is an "appropriate" one when it comes to being certified as a class action, and that Great-West is reviewing the matter. She did not elaborate.

The two other companies named in the suit are London Insurance Group Inc., London Life's parent company, and Great-West's key operating unit, Great-West Life Assurance Co.

Ms. Holmes' statement of claim cites a note in London Life's 1997 annual report about integration costs incurred in the takeover by Great-West. The note says London Life's par policy holders "prefunded $180-million of net anticipated expense savings resulting from the business combination" of the two insurers.

The statement of claim also says London Life has not responded to written requests for details of precisely when the funds were removed, how they were removed and to whom they were paid.

A similar note in Great-West's 1997 annual report, meanwhile, refers to par policy holders providing a total of $220-million of prefunding. Ms. Klassen said the additional $40-million came from Great-West's participating account.

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Ms. Holmes' mother, Anne Holmes of Uxbridge, Ont., is no stranger to London Life. She first gained media exposure in April, 1997 -- several months before Great-West launched its takeover bid -- when she challenged London Life over controversial "vanishing premium" policies she and other members of her family had bought from the company.

She subsequently launched the Canadian Life Insurance Policyholders Association and has become a thorn in the side of other large insurers, particularly Sun Life Assurance Co. of Canada and Manulife Financial Corp., both based in Toronto. For example, she frequently has accused Sun Life of misleading its policy holders and has raised questions about its accounting, especially in connection with its plans to go public.

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