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Manulife Financial's former CEO, Dominic D'Alessandro, left, and its current CEO, Donald Guloien, right, are expected to testify.Mike Cassese/Reuters

About 8,000 people in Barbados – 3 per cent of island's population – are suing Manulife Financial Corp., alleging that it bilked them of money they should have received when the insurer became a public company.

A trial to determine the outcome of the class-action lawsuit began in Toronto this week, after lawyers assembled five boxes stacked with about 1,500 documents. Both current Manulife chief executive officer Don Guloien and former CEO Dominic D'Alessandro are expected to testify.

The unusual case pits residents of the sun-drenched Caribbean nation, which is a five-hour flight from Toronto, against Canada's second-largest insurer by stock market value. The key issue at play is the ownership rights that policy holders have in mutual insurance companies when they "demutualize," or convert to a traditional corporate structure.

The case comes to trial just as Ottawa is in the process of determining the rules by which Canada's property and casualty insurers will be allowed to demutualize. And it's yet another headache for Manulife, which was walloped during the stock market meltdown of 2008 and is coping with the financially damaging prospect of low interest rates for years to come.

Mutual insurers are essentially owned by their participating policy holders. In a demutualization, their ownership is converted into shares of the company. Manulife paid out $8.3-billion in cash and shares to participating policy holders around the world, primarily in Canada, when it demutualized in 1999 – about three years after selling its operations in Barbados.

The lawsuit alleges that Manulife already knew that it would be demutualizing when it did the sale, yet took no steps to protect the Barbadian policy holders' rights to a piece of the action. Among the thousands of plaintiffs in the class is Wismar Greaves, who bought three participating policies from Manulife before he became Supervisor of Insurance in the Barbados Ministry of Finance.

The trial, which is expected to be lengthy, began on Monday and will be heard during the weeks to come by Mr. Justice Frank Newbould of the Ontario Superior Court. Before going to trial, class-action suits must go through many preliminaries, including certification, and there is generally a long wait for a judge. This one was further delayed because one of the key lawyers for the plaintiffs had a stroke.

The suit alleges that Manulife knew back in 1994, when it hired Mr. D'Alessandro away from his post as CEO of Laurentian Bank, that it would likely be demutualizing. The lawsuit alleges that when Manulife sold its operations in Barbados, its executives took deliberate actions that prevented participating policy holders in that country from receiving payouts.

"There is no doubt that there was some internal debate within Manulife on this point," Linda Rothstein, one of the lawyers for the class, told the judge.

A lawyer for Manulife told the court that the class members had no right to demutualization benefits because they were no longer holding policies with Manulife when it announced it was demutualizing. Mr. D'Alessandro was still cautiously exploring many avenues for the company back in 1996 and 1997, and it is possible for firms to demutualize without paying distributions, she said.

Manulife began operating in Barbados in the 1890s. A century later, when it sold the business to Life of Barbados, it was the leading provider of life insurance in the country.

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