CLICO policyholders challenge protection law for central bank

CLICO policyholders have headed to court with a challenge to new legislation passed last week by the Trinidad Parliament that bars legal action against the central bank for recovery of funds from the failed insurance company.

Percy Farrell, the court-appointed representative for Executive Flexible Premium Annuity (EFPA) policyholders, initiated legal proceedings Monday against Finance Minister Winston Dookeran.

Farrell and four others are challenging the provisions of the Purchase of Certain Rights and Validation Act of 2011(PCRVA) and the Central Bank Amendment Act 2011(CBAA).

Last week, Dookeran successfully piloted legislation allowing for the buyout of certain rights held by CLICO and British American Insurance Company policyholders.

The two insurance companies collapsed in January 2009. Trinidad pumped TT$5.1 billion (US$850 million) into CLICO between February 2009 and May 2010.

Last year, Dookeran announced a compensation plan of up to TT$75,000 (US$12,500) per client. Investors owed more than TT$75,000 would be paid the excess over 20 years at zero interest.

The Purchase of Certain Rights and Validation Bill 2011 seeks to "provide for the purchase of certain rights" of the holders of short-term investment products issued by CLICO Trinidad Limited and British American.

The legislation gives the finance minister the authority to "issue 20 bonds of varying maturities from one to 20 years, and which shall not exceed in the aggregate TT$10.7 billion (US$1.7 billion), after which he may issue additional bonds".

The amendment to the central-bank legislation indicates that no creditor, shareholder, depositor, policyholder, or any other person, shall have any remedy against the institution in respect of any claim and that these people shall not "continue any action, execution or other proceedings or seek to enforce in any way whatsoever without limitation in Trinidad and Tobago, any judgment or order obtained in Trinidad and Tobago or any other jurisdiction against the institution or its successor ... ".

The EFPA policyholders group has named Dookeran, CLICO, the Trinidad and Tobago Central Bank and Republic Bank as defendants in the matter.

In their court action, the claimants are asking the High Court to interpret the relevant provisions of the two acts on the grounds that the terms of the acts claim to prohibit them from continuing proceedings against CLICO and the central bank.

They also claim that the PCRVA purports to reclassify the EFPA policies as short-term investment products (STIPs) in a manner calculated to deny the EFPA policyholders their status as holders of insurance policies issued by CLICO as part of its long-term insurance business as defined by the Insurance Act.

In particular, the claimants say, the reclassification of the EFPA policies as STIPs under the terms of the PCRVA, when considered in conjunction with the provisions of the CBAA barring the continuation of the present proceedings, constitute a plan by the State designed to do the following:

Deprive the EFPA policyholders of their right to the benefit of having their policies honoured in full or in part from the assets placed on the trust in accordance with Section 37 and 39 of the Insurance Act; and

Remove the EFPA policyholders from the class of beneficiaries of the aforementioned trust who have a statutory entitlement to the protection and security for their investments provided by the Statutory Fund.

The claimants contend the passage or implementation and carrying into effect the provisions of the PCRVA in conjunction of the CBAA will only result in a breach of trust, in so far as the class of EFPA policyholders with investments above TT$75,000 is concerned but is also calculated to extinguish their entitlements beneficiaries.

The claimants are seeking a declaration that they and all EFPA policyholders belong to the same class of beneficiaries as the life policyholders of CLICO in "respect of the trust created under Sections 37 and 39 of the Insurance Act of the assets placed by CLICO in its Statutory Fund in order to provide protection and security for all policyholders who have been issued policies in respect of the conduct of its long-term insurance business.

The claimants argue that they were entitled to share equally in the trust fund with the life policyholders of CLICO.