PERRY — Noble County District Court Judge Lee Turner issued a temporary restraining order delaying the proposed reorganization of CompSource from a mutual company to a stock company Wednesday afternoon. The order, which delays the company’s plans to mail a notice to policyholders April 17, is likely to be appealed to the Oklahoma Supreme Court.
CompSource, an Oklahoma mutual company with its origins in the 1930s as a state-owned insurer of last resort for workers’ compensation insurance, became a private mutual company a decade ago. Last August, the company quietly announced plans to transition to a stock company last August, according to Oklahoma Watch. The process requires the approval of Insurance Commissioner Glen Mulready, which he granted in March, and a two-thirds vote of policyholders to approve the change.
Trivestco Energy Company and the Lobaugh Law Firm filed a lawsuit to prevent the reorganization, hiring the Whitten Burrage law firm and arguing that a transition from mutual company to stock company would make CompSource prioritize investor profits over the best interests of its longstanding customers. Whitten Burrage attorneys are also representing clients in a class action lawsuit against CompSource filed in 2020. A representative from Attorney General Gentner Drummond’s office also observed Wednesday’s hearing.
Slow hearing ends abruptly, Turner grants TRO
A flock of attorneys packed into the third-floor Noble County courtroom Wednesday morning for a full-day hearing in front of Turner.
“There’s not enough chairs for all the attorneys,” Turner quipped before beginning the hearing.
Attorney Joe White opened for the policy-holding plaintiffs by arguing the court should just sign the temporary restraining order, citing a House resolution authored by Rep. Chris Sneed (R-Fort Gibson) and enrolled the day before the hearing.
“We believe the TRO is overdue,” White said. “Let them have their day down at the Supreme Court. Sign the TRO and let them appeal.”
Thomas Wolfe, representing CompSource, countered that the House resolution was not binding and criticized both Sneed and his resolution.
“This is performative, this resolution,” Wolfe said. “We watched the video of the House proceedings. (…) Rep. Sneed doesn’t know what the heck is going on.”
After Turner told the attorneys he would not rule on the TRO before hearing from witnesses, attorneys for plaintiffs called two expert witnesses, including former Oklahoma Tax Commissioner Charlie Prater, a longtime insurance industry executive.
Prater argued that switching from a mutual company to a stock company would “dilute” the value of policyholders’ interest in the company and open it up to hostile takeovers by larger insurance companies.
“If they’re going to become a stock company, (there is) absolutely (a risk of a hostile takeover).” Prater said. “I’m not impressed with the (insurance) commissioner’s order, and I’d tell that to his face.”
As questioning progressed from minutes to hours, Turner seemed to be in no rush to get through the hearing.
“I don’t have anything until a jury trial tomorrow morning,” Turner said in the early afternoon.
But around 4 p.m., the mood in the courtroom quickly changed when attorneys for CompSource were questioning Prater and moved to introduce a document called the “Policyholder Information Statement Relating to the Proposed Plan” before questioning him about it. White hopped from his seat and objected to the document’s introduction.
White told the court Whitten Burrage had requested that specific document back in October but that plaintiffs were denied access to it by the Oklahoma Insurance Department because it was considered confidential under state law.
“How on Earth could that policyholder info statement be confidential to policyholders and their attorneys?” White asked. “Issue [the TRO] now. I wanted it this morning. (…) You see they’re hiding documents from us. (…) That’s reprehensible. I think its sanctionable, and it may be criminal. That’s why the attorney general [has a representative] in the courtroom.”
Wolfe argued White was being theatrical.
“I think he ought to sue the Oklahoma Insurance Department. (…) I’ve never seen [this request],” Wolfe said. “I am at a loss, other than the show of theatrics, (as to) why this is a big deal.”
Turner seemed convinced by White’s performance and called a “timeout” to consider the request.
“Quite troubling to say the least,” Turner said. “I’m extremely troubled by this.”
After a short break, Turner returned and said he would issue an order granting the TRO and said he expected to see the parties again to finish the hearing at another date
“There is a ton at stake in this,” Turner said. “I have questions.”
Megan Huntley, CompSource Mutual’s communications director, noted Thursday that the company serves “businesses spanning all industries, primarily insuring their Oklahoma-based operations, with limited and restrictive options to offer coverage for work done in other states.”
Huntley pushed back Thursday on “any accusation” that the proposed reorganization would not be in its customers’ best interest.
“As a company rooted in Oklahoma and one that has served our neighbors, workers, and businesses for decades, we wholeheartedly disagree with any accusation that we are not acting in their best interest. We can’t comment on active litigation, but we have been transparent about our future goals. A dedicated page on our website, www.compsourcemutual.com/mhc, provides clear and accurate information about Mutual Holding Companies and what policyholders need to know about the proposed change.”
But Hannah Whitten, who joined White in arguing Wednesday’s motion on behalf of the plaintiffs, said she believes “this is one of the most righteous cases I could work on” because “it’s pretty clear that CompSource is more interested in developing new shareholders and policyholders outside of the state of Oklahoma than CompSource is in protecting the current policyholders it serves.”
“These businesses have been loyal policyholders for decades,” Whitten said Thursday. “It has come to my attention that CompSource has been dropping people from coverage, including our state’s public schools, to avoid paying them any interest in a conversion. So they submitted a plan for reorganization to the Oklahoma Insurance Department, which has been approved. And the commissioner’s order approving the plan actually notes that there is a risk of dilution of the current policyholders’ ownership interest and that there are inherent conflicts of interest. The commissioner’s order does note that he is proposing protections for the policyholders, but they only last three to five years. So from the plaintiff perspective, I represent two policyholders who believe the CompSource board should start from the beginning and fully flesh out these risks so that the policyholders understand the negative impacts of this plan. Because if this plan is implemented, it allows for outside shareholders and stockholders — non-Oklahoma businesses — to be a part of the company. And today, CompSource could never do that.”
