Axccess Lifestyle Membership Corporation v. Superintendent of Financial Services, 2012 ONFST 15

FINANCIAL SERVICES TRIBUNAL

2012 ONFST 15

Decision No. I0491-2011-1

Date: 2012/06/01

IN THE MATTER OF the Insurance Act, R.S.O. 1990, c. 1-8, as amended by the Financial Services Commission of Ontario Act, 1997, S.O. 1997, c.28 (“the Act”);

AND IN THE MATTER OF a Proposed Cease and Desist Order against Axccess Lifestyle Membership Corporation and Robert Mattacchione;

AND IN THE MATTER OF an Interim Cease and Desist order and an Extension of Interim Cease and Desist Order against Axccess Lifestyle Membership Corporation and Robert Mattacchione;

AND IN THE MATTER OF a Request for Hearing filed in accordance with section 441(3) of the Act filed by Axccess Lifestyle Membership Corporation and Robert Mattacchione.

B E T W E E N:

AXCCESS LIFESTYLE MEMBERSHIP CORPORATION

and ROBERT MATTACCHIONE

Applicants

• and -

SUPERINTENDENT OF FINANCIAL SERVICES

Respondent

BEFORE:

John M. Solursh Chair of the Tribunal and Chair of the Panel Ralph Scane Member of the Tribunal and Member of the Panel Heather Gavin Member of the Tribunal and Member of the Panel

APPEARANCES:

Robert Mattacchione, representing the Applicants Stephen Scharbach, representing the Respondent

HEARD:

April 18 and 19, 2012

REASONS FOR DECISION

A. INTRODUCTION

1. This hearing was requested by the Applicants Axccess Lifestyle Membership Corporation (“Axccess”) and Robert Mattacchione, the sole director of Axccess with respect to a Notice of Proposed Cease and Desist Order and an Interim Cease and Desist Order issued by the Superintendent of Financial Services (the “Superintendent”) against them on October 20, 2011 (the “Notice and Order”).

2. On November 22, 2011, the Interim Cease and Desist Order was extended by the Superintendent until the hearing before the Tribunal in this matter is concluded and the Order is confirmed, varied or revoked.

3. The Notice and Order were issued under section 441 of the Act which provides that the Superintendent may issue such a Notice and Order if he is of the opinion that a person is committing, or has committed, “an unfair or deceptive act or practice” (“UDAP”). Ontario Regulation 7/00, made under the Act, prescribed listed actions that constitute a UDAP including: “5. Any false or misleading statement as to the terms, benefits or advantages of any contract or policy of insurance issued or to be issued.” The Superintendent stated in the Notice and Order, in the Interim Cease and Desist Order and in a related Report that he was of the opinion that Axccess committed a UDAP by making false or misleading statements to the effect that Axccess could provide low cost auto insurance to the public from Lloyd’s Canada, an insurer, and brokered through Chesterfield Insurance Brokers Ltd. (defined below together with its affiliates as “Chesterfield”). According to the Superintendent’s information those statements were false - neither Lloyd’s nor Chesterfield were involved in the program that was being promoted by Axccess.

4. In the Notice and Order, and in the related Report, the Superintendent further stated that he was of the opinion that the public was at risk. It was the Superintendent’s position that Axccess’ promotional material invited the public to purchase, and invited financial advisors to promote an insurance product that did not exist. Therefore the Superintendent issued the Notice and Order and proposed a permanent Cease and Desist Order requiring that Axccess cease and desist making and/or publishing any statement to the effect that it could arrange insurance coverage provided by Lloyd’s Canada and/or brokered through Chesterfield.

5. The Superintendent’s counsel, after considering the evidence presented at the hearing advised the Tribunal that it was clear that none of Lloyd’s Canada, its affiliates or Chesterfield were prepared to be involved in the insurance product being proposed by Axccess. Accordingly the Superintendent proposed that a permanent Cease and Desist Order be issued by the Tribunal on a somewhat broader basis than originally proposed by the Superintendent (not limited to any involvement of Lloyd’s Canada or Chesterfield) so as to effectively require Axccess to not offer the insurance product it was contemplating without prior approval of the Superintendent.

B. STATUTORY FRAMEWORK

6. The relevant provisions relating to the issuance by the Superintendent of a Notice of Proposal to make a Cease and Desist Order, the right of an affected person to a Hearing before the Tribunal, and the power of the Tribunal to issue a related Cease and Desist Order with respect to “unfair or deceptive acts or practices” are set out in Part XVIII of the Act. The applicable provisions of Part XVIII for purposes of the hearing are as follows:

“Definitions, Part XVIII

438. For the purposes of this Part,

“person” includes an individual, corporation, association, partnership, organization, reciprocal or insurance exchange, member of the society known as Lloyd’s, fraternal society, mutual benefit society or syndicate; (“personne”)

“unfair or deceptive acts or practices” means any activity or failure to act that is prescribed as an unfair or deceptive act or practice. (“actes ou pratiques malhonnêtes ou mesongers”) R.S.O. 1990, c. I.8, s. 438; 1993, c. 10, s. 48; 1999, c. 12, Sched. I, s. 4 (60, 61).

Unfair or deceptive acts, etc., prohibited

439. No person shall engage in any unfair or deceptive act or practice, R.S.O. 1990, c. I.8, s. 439.

Superintendent may investigate

440. The Superintendent may examine and investigate the affairs of every person engaged in the business of insurance in Ontario in order to determine whether such person has been, or is, engaged in any unfair or deceptive act or practice. R.S.O. 1990, c. I.8, s. 440.

Action on examination or investigation Superintendent’s report

441. (1) Upon examination or investigation, or upon any other evidence, the Superintendent shall make a report if he or she is of the opinion that a person has committed or is committing any act, or has pursued or is pursuing any course of conduct, that is an unfair or deceptive act or practice or might reasonably be expected to result in a state of affairs that would constitute an unfair or deceptive act or practice.

Notice

(2) The Superintendent may give notice in writing, which shall include a copy of the report made under subsection (1), to the person that the Superintendent intends to order the person,

(a) to cease or refrain from doing any act or pursuing any course of conduct identified by the Superintendent;

(b) to cease engaging in the business of insurance or any aspect of the business of insurance specified by the Superintendent; or

(c) to perform the acts that, in the opinion of the Superintendent, are necessary to remedy the situation.

Request for hearing

(3) Within 15 days after receiving the notice, a person may request in writing that the Tribunal hold a hearing before the Superintendent takes any action described in the notice.

Interim order

(4) Despite subsection (3), if the Superintendent is of the opinion that the interests of the public may be prejudiced or adversely affected by any delay in the issuance of a permanent order, the Superintendent, without prior notice, may make an interim order as described in subsection (2) which shall take effect immediately on its making, and which shall become permanent on the 15th day after its making unless within that time the person requests a hearing before the Tribunal.

Hearing

(5) If within the time period allowed, the person requests a hearing, the Tribunal shall hold a hearing.

Extension of order

(6) If, within the time period allowed, the person requests a hearing and the Superintendent has made an interim order under subsection (4), the Superintendent may extend the interim order until the hearing is concluded and the order is confirmed, varied or revoked.

No request for hearing

(7) If the person does not request a hearing within the time period allowed, the Superintendent may make an order in accordance with the notice given under subsection (2) which shall take effect on the date set out in the order.

Hearing

(8) At a hearing, if the Tribunal is of the opinion that an order described in subsection 2 should be made, the Tribunal may make an order which shall take effect on the date set out in the order.

Modification

(9) The Superintendent may modify any order made under this section after giving the person named in the order an opportunity to make written submissions.

Appeal

(10) The person named in an order modified by the Superintendent may appeal the order to the Tribunal.

Revocation

(11) The Superintendent may revoke any order made under this section. 1997, c. 28, s. 144.”

In brief, the Superintendent determines whether in his opinion a person has committed or is committing any act, or has pursued or is pursuing any course of conduct, that is a UDAP “or might reasonably be expected to result in a state of affairs that would constitute” a UDAP. The Superintendent then gives written notice, including a copy of his report, to the person that the Superintendent intends to order to:

“(a) to cease or refrain from doing any act or pursuing any course of conduct identified by the Superintendent; [or]

(b) to cease engaging in the business of insurance or any aspect of the business of insurance specified by the Superintendent; ...”

7. Ontario Regulation 7/00 prescribes activities or failure to act that constitutes “unfair or deceptive acts or practices” in accordance with section 438 of the Act. Paragraph 5 of section 1 of that Regulation (the “Regulation”) provides that an unfair or deceptive act or practice includes “any false or misleading statement as to the terms, benefits or advantages of any contract or policy of insurance issued or to be issued.”

8. The Tribunal is empowered under subsection 441(8) to make an order described in subsection (2) which shall take effect on the date set out in the order. The parties agreed that in effect the matters raised by the Notice and Order are to be addressed de novo by the Tribunal which is to reach its opinion based on the facts, as presented at the hearing, and the applicable law. In effect the Tribunal steps into the shoes of the Superintendent in deciding whether to issue a Cease and Desist Order with respect to a UDAP. In that context section 3 of the Financial Services Commission of Ontario Act, 1997 S.O. 1997, c. 28 provides inter alia, that the purposes of the Commission include the provision of “regulatory services that protect the public and enhance the public confidence in the regulated sectors.” Insurance is one of the regulated sectors.

C. ISSUES

9. The primary issue is whether the conduct of the Applicants with respect to the home and auto insurance component of the membership program being created and being communicated by the Applicants to life insurance agents and other advisors, in contemplation at the first stage of a proposed future offering of the membership program including such insurance coverage through such agents and other advisors to potential individual members, constituted a UDAP which should be the subject of a Cease and Desist Order by the Tribunal under section 441(8) of the Act. If the Tribunal is satisfied that such an order should be issued, the secondary issue is the extent of such an order, i.e. should it be limited to Lloyd’s Canada and Chesterfield Insurance Brokers Limited as originally proposed by the Superintendent or should it be more broadly worded so as to better ensure in advance that any insurance component (including home and auto insurance) of any future version of the Axccess membership program offered to the public be in compliance with the Act.

10. The Tribunal has concluded, after considering the evidence presented at the hearing that it should issue an order requiring the Applicants, effective as and from the date of the order, to cease and refrain from making and/or publishing any statements, written or otherwise, to the effect that Axccess can arrange for, secure, or facilitate insurance coverage until a contract to underwrite policies of insurance providing for such coverage has been put in place in compliance with applicable laws and regulations.

11. At the conclusion of the hearing, the Superintendent, through his counsel, acknowledged that it was satisfied with the commitment of Chesterfield Insurance Brokers Limited and Chesterfield Canada Limited (collectively “Chesterfield”) as communicated to the Superintendent, that it would not participate in any insurance component of the membership arrangements being marketed by Axccess. Accordingly the Superintendent did not see any need to continue the portion of its Cease and Desist Order relating to Chesterfield.

D. EVIDENCE

12. The parties did not submit an Agreed Statement of Facts in this matter, but counsel for the Superintendent filed a Book of Documents with the Applicants’ consent. Additional documents also were presented as evidence filed by the Superintendent or the Applicants with consent of both parties. Over the course of two days, the Tribunal received testimony under affirmation from nine witnesses including Mr. Mattacchione. We will highlight what we regard as the key elements of the evidence, including the documents identified during the testimony of one or more of the witnesses.

a. Testimony of AT

13. Mr. AT was called as a witness by the Superintendent. AT is an insurance agent licensed by the Financial Services Commission of Ontario (a “FSCO Licensed Agent”). He is not an insurance agent registered in Ontario with the Registered Insurance Brokers of Ontario, the regulatory body governing insurance brokers in Ontario (a “RIBO Agent”). He and VC (the next witness) are senior agents in a corporation they control that we will identify as NW. They had contacted and met with MA with respect to the proposed Axccess Lifestyle Program (the “Program”). They were told by MA, whose relationship to Axccess and Mr. Mattacchione will be described in more detail later in this decision, that the Program would be an innovative arrangement having a number of features including availability to individuals who become members of home and auto insurance under very favourable terms. In order to qualify for the various aspects of the program, including the proposed home and auto insurance coverage an individual would have to be accepted for membership through subscription agreements and a minimum 2,000 individuals would have to become members of the Program. The requested role of NW was to assist in the launch of the Program by providing an introduction of the Program to NW’s contacts being other insurance agents and advisors and their clients. AT stated that in his opinion the key attraction of the Program was the identified terms of home and automobile insurance, particularly rates that were favourable when compared to rates otherwise available in the market place.

14. AT’s understanding from MA was that the home and automobile insurance coverage would be provided by Lloyd’s Canada (“Lloyd’s”) through Chesterfield. AT was assured by MA that the arrangements with Lloyd’s and Chesterfield were in place before material that identified the involvement of those entities was prepared by NW and circulated by it at a meeting arranged by NW with its clients was held on October 7th, 2011 (the “October 7 meeting”). The PowerPoint overhead materials presented at the October 7th meeting included the logos of Lloyd’s and Chesterfield and the names of Lloyd’s Canada and Chesterfield Canada, Inc. (identified as a Lloyd’s accredited broker) under the heading “Names You Can Trust.” He was not aware that Lloyd’s and Chesterfield had not agreed to the proposed arrangements until that fact was brought his attention by FSCO and Chesterfield after the October 7 meeting.

15. These meeting materials, identified the various features of the Program. However, as AT stated consistently in his testimony, it is clear that the feature of the Program which received the primary attention and interest of attendees and was the main emphasis of the presentation was the home and auto insurance coverage.

16. AT identified an invitation sent to potential attendees to the October 7th meeting. The invitation referred to the “official launch for Lloyd’s revolutionary Auto & Home Coverage product” and indicated that “you can offer this product to your clients - no licence required.” It also stated that “coverage would be provided by Lloyd’s Canada, applications completed by Chesterfield Canada Inc., and Return of Premium guaranteed and paid by a named major Canadian chartered bank¹”. It was clear from the invitation that the home and automobile insurance coverage was expected to be a key attraction of the Program to the agents and other advisors invited to the meeting.

17. On cross-examination, AT acknowledged that NW was a party to an Agency Agreement made the 30th day of September, 2011 with Axccess. A copy of the Agency Agreement was introduced in evidence. It clearly appointed NW as the agent of Axccess “to assist Axccess in completing and fulfilling its obligations under its agreement”. The Agency Agreement does not set out a detailed list of the obligations of Axccess although there are a number of provisions which focus on collateral matters such as the payment of referral fees. The Agent, NW, acknowledged in the Agency Agreement the method of operation of Axccess, namely that it is a Lifestyle Membership Company “which distributes lifestyle products and services”. In subsequent testimony (summarized below) MA and Mr. Mattachione testified that they prepared the Agency Agreement, apparently without the assistance of legal counsel.

18. Paragraph 6.0(1) of the Agency Agreement provided that “no advertising material prepared by the Agent will be used without the prior written approval by Axccess.” AT testified that the material for the meeting was forwarded to MA. It was his understanding that MA, as the chief agent of Axccess, had verbally approved the material although he testified that the following day MA advised him that the subscription form for the auto and home insurance coverage, as prepared and provided by MA on behalf of Axccess, should not be presented at the meeting and only the membership agreement with Axccess Lifestyle, as also prepared and provided by Axccess through MA, should remain in the meeting materials. No written approval for the general materials prepared for the meeting was received from Axccess.

b. Testimony of VC

19. The next witness called by the Superintendent was Mr. VC, who is also a principal of NW and a FSCO Licensed Agent but not a RIBO Agent. His testimony was substantially consistent with the testimony of his colleague AT. He also emphasized his understanding that the Program was very much a concept in progress, and that a minimum of 2,000 subscribers were required to “get things going”. From his perspective, as an insurance agent, the home and auto insurance feature was clearly the most attractive aspect of the Program. He also confirmed that it was his and NW’s understanding from MA prior to and at the October meeting, that the home and auto insurance feature would be facilitated through Lloyd’s and Chesterfield and that Lloyd’s and Chesterfield were on-side with the arrangement provided that the 2,000 person minimum membership limit could be achieved.

20. VC testified that the subscription agreements (insurance and membership) were not given out to NW’s clients at the meeting.

21. VC identified material forwarded to him regarding “ICC Axccess” by MA, who identified himself in a covering e-mail as “Sales and Marketing” on September 6, 2011. This was an invitation from Axccess Lifestyle Management to a September 28, 2011 meeting in Richmond Hill. According to the invitation, Mr. Robert Mattacchione, CEO of ICC Axccess would be the keynote speaker. Identified as the first item on the agenda for the meeting was the potential savings of up to 55% on home and auto coverage premiums over the next five years. Other features of the potential Axccess Lifestyle Membership Club were also set out in notice materials although it is clear to this Tribunal that the “Home and Auto Protection Program” was the primary financial attraction of membership.²

22. VC testified that the materials presented at the October 7th meeting were just in PowerPoint form and were not intended to be distributed at the meeting. He also confirmed that the subscription agreement for home and automobile insurance, at the direction of MA, was not handed out at the meeting on the basis that the Program was not yet ready.

23. According to VC, MA spent some time at the October 7th meeting describing the Program. The question and answers at the meeting focussed mainly on the Home and Auto Insurance component of the Program.

24. Shortly after the October 7th meeting VC received a telephone call from an individual at Lloyd’s who wanted to know who was behind the Program. Subsequently he was contacted by Chesterfield. A few days later “Cease and Desist” directions were received from both Lloyd’s and Chesterfield. Specifically VC acknowledged an email, presented in evidence, from Mr. SM of Lloyd’s that no arrangement was in place with Axccess and that therefore NW should cease and desist from in any manner, directly or indirectly, purporting to place business with Lloyd’s or Lloyd’s approved intermediaries or brokers. The same day (October 14th) VC replied by email to SM at Lloyd’s acknowledging that it had come to NW’s attention that Axccess did not have all their contracts in place with their affiliates before launching their membership program and as such NW had terminated its relationship with Axccess. VC stated that the email received from Lloyd’s regarding ceasing and desisting was the first time he knew that the proposed program relating to home and automobile insurance with Lloyd’s was not yet in place.

25. On cross-examination VC testified that he did not think MA was an employee of Axccess but he understood MA to be an agent of Axccess with respect to the creation of the Program. He acknowledged that the Agency Agreement between NW and Axccess required prior written approval of written materials by Axccess; however, he had understood the process of circulating materials to MA and the related oral responses from MA had been accepted by MA, and through him, by the Applicants, as sufficient approval notwithstanding the lack of specific written approval. He understood the only significant qualification to the marketing of the home and auto insurance component of the Program was the attaining of the 2,000 person minimum membership limit.

c. Testimony of TS

26. The third witness called by the Superintendent was Mr. TS. TS is a FSCO Licensed Agent and a RIBO Licensed Agent for purposes of selling home and automobile insurance. He testified that he attended the October 7th meeting and, being aware that Lloyd’s was no longer offering direct sale of auto and home insurance in Canada, several times (including specifically during the question period at the end of the presentation by MA) raised his concern that Lloyd’s would not be participating in the program as indicated in the written materials. He was told by MA not to interrupt. At no point during the question period nor when he raised the concern again after the formal part of the meeting, was he given a satisfactory answer to his concern that neither Lloyd’s, as insurer, nor Chesterfield, as a periodic Lloyd’s broker, would be involved in the arrangement as described at the meeting.

27. TS was very concerned with the risk of non-compliance with the Act. Accordingly he faxed the information he had obtained at the meeting, including the meeting materials, to GH at Chesterfield.

28. TS specifically confirmed that, contrary to what VC had testified, the written materials including the PowerPoint presentation, had been handed out to him in paper form at the October 7th meeting. We accept TS’s testimony on this point and would note that it is consistent with the subsequent testimony of AV and with the subsequent testimony of GH that GH received copies of the materials from him.

29. TS commented that in his experience the concept of the target minimum 2,000 person group in the context of the Program, without a clear group claims history, resulting in a low quoted rate of insurance, made no sense to him.

30. TS agreed with the understanding of AT and VC that the offering at the October 7th meeting was intended to recruit agents and other advisors to sell policies and did not appear to be intended to result in immediate sales at the October 7th meeting to individual members of the public.

31. It is clear that TS’s enquiries, as a good corporate citizen and broker, as directed to GH ultimately led to the replies from Lloyd’s and Chesterfield that Axccess and others should cease and desist in preparing and distributing material indicating that Lloyd’s and Chesterfield were involved in the proposed home and auto arrangement. His enquiries also apparently triggered the prompt involvement of the Superintendent’s staff.

d. Testimony of AV

32. The next witness called by the Superintendent was Mr. AV, a FSCO Licensed Agent but not a RIBO Agent. He received an invitation to the October 7th meeting organized by NW and attended it. He testified that AT handled the introduction, VC did the presentation and MA handled the question and answer period. In addition, contrary to the evidence of VC but consistent with the testimony of TS, he was given a disk (including the PowerPoint presentation) and a handout which included the meeting materials prepared by NW. He also saw a copy of the Subscription Agreement for members.

33. He stated that while other features of the Program were briefly discussed, most of the focus at the October 7th meeting was on auto and home insurance both during the main presentation and at the following question and answer stage. Lloyd’s was mentioned as the insurer. He had no recollection of any indication by VC or MA that agreements with Lloyd’s and/or Chesterfield were not in place. He said on cross-examination that attendees were encouraged to fill out and hand in the Axccess Lifestyle Membership forms.

34. On the Wednesday following the meeting, he was advised that the Program was on hold and not to take any more applications. He was not told anything specifically about the fact that Lloyd’s and Chesterfield had made it clear they should not be identified as being participants in the Program.

e. Testimony of GH

35. The next witness called by the Superintendent was Mr. GH of Chesterfield Insurance Brokers Limited, a fully accredited Lloyd’s broker and registered in the United Kingdom, and also an executive of Chesterfield Canada Inc. (collectively “Chesterfield”). He is a RIBO registered insurance broker in Ontario. He testified that he received calls from various persons including Mr. TS following the October 7th meeting asking whether Chesterfield was involved and was a broker with respect to home and auto insurance on behalf of Lloyd’s under the Axccess Lifestyle Membership Program.

36. He confirmed that Chesterfield periodically acts as a representative to arrange some types of insurance through Lloyd’s, particularly in the United Kingdom. As a result of the inquiries received from TS and another individual he called various entities and persons including the Registered Insurance Brokers of Ontario, Lloyd’s Canada and his colleagues at Chesterfield in the U.K. He also called to VC at NW and was told by VC that VC understood that the auto and home portion of the Axccess Lifestyle Membership product was being put together by Axccess with Lloyd’s and Chesterfield.

37. When GH spoke to his colleague AMcG, the Chair of Chesterfield U.K., he was advised by AMcG that there were no arrangements in place or under discussion with Axccess. However, it appears from subsequent testimony during the hearing by JH on behalf of Canadian Intermediaries Limited (“CIL”) that there had been some recent very preliminary discussions regarding a proposed auto and home insurance arrangement. After the Notice and Order were issued, GH was advised by AMcG that the proposed arrangement, if implemented was to be put in place through CIL, that there had been mention of Axccess and that, in any event, no future effort would be made to put the arrangement in place, including contacting a registered and qualified insurer, until an appropriate premium and other arrangements, including legal compliance aspects, were addressed. Specifically, AMcG advised him that no agreement was ever entered into with CIL with respect to Axccess.³

38. In view of the foregoing, according to GH, he was satisfied that no arrangement had been put in place relating to Axccess and specifically that a lot of work needed to be done and due diligence performed before it could be done, including, identification of an insurer.

39. Shortly after the October 7th meeting GH issued a “Cease and Desist” regarding the arrangement, RIBO put a warning on its website and FSCO issued the Cease and Desist Order which is the subject of this hearing. He was not aware of any further efforts to market the product and in any event he stated that Chesterfield would not participate in marketing the home and auto insurance portion of the Program.

f. Testimony of SM

40. The final witness on the first day was Mr. SM, the chief attorney for Lloyd’s in Canada. He explained how Lloyd’s U.K. operates in creating syndicates and also the substantially more limited role of Lloyd’s Canada as a service company to Lloyd’s U.K. Lloyd’s U.K. and Lloyd’s Canada are collectively referred to as “Lloyd’s” in these Reasons for Decision.

41. SM testified that it is well known in the insurance business in recent years, including in 2011, that Lloyd’s does not offer automobile insurance in Canada except for “fleet rated” policies (e.g. for trucking and limousine companies where 5 or more vehicles are offered under common ownership).

42. SM testified that he received calls on October 7th and October 11th, 2011 regarding the alleged offering by Axccess of home and automobile coverage through Lloyd’s. Within a day of the first call he raised this matter with Lloyd’s head office in the United Kingdom. He then contacted Chesterfield and was satisfied that Chesterfield had taken appropriate measures to put a halt to the arrangement. SM issued a “Cease and Desist” letter on behalf of Lloyd’s to NW and tried unsuccessfully to get in touch with the President of CIL.

43. SM stated that there was no relationship between Lloyd’s and Axccess and specifically that no agreement had ever been reached between them, i.e. no relationship was formed and there was no intent by Lloyd’s to market the proposed home and auto insurance business identified in the October 7th meeting materials.

g. Testimony of MA

44. The first witness called by the Applicants was Mr. MA. He is a FSCO Licensed Agent. He previously also had been a RIBO Licensed Agent but gave up his RIBO licence sometime in the 1990’s.

45. MA testified that he joined Mr. Mattacchione’s “team” to market various lifestyle products to clients. He had several meetings with Mr. Mattacchione to discuss the parameters of how a “membership style” product might work. The product was to include a wide range of benefits including an insurance platform.

46. MA’s role on the team was to talk to agents, including NW, whose principals he knew personally, to advance the marketing of the Program recognizing that the membership concept was still at an earlier stage and was not yet ready to launch. A minimum of 2,000 members was required to proceed with respect to the insurance aspects of the project. He understood that some other aspects of the insurance platform still needed to be “worked out” in addition to meeting the 2,000 member plateau.

47. In moving the project forward he worked closely with Rockfort Company Limited (“Rockfort”) in the process of dealing with other insurance agents and financial advisors regarding marketing and networking. Rockfort was the group that arranged for the September 28, 2011 meeting identified in the earlier testimony. Both he and Mr. Mattacchione were at the September 28 meeting. Notwithstanding that the invitation stated it was from Axccess he expressed his view that it was really a Rockfort presentation rather than an Axccess presentation.

48. MA testified that he was primarily responsible for the communication aspect of marketing the Program.

49. Mr. Mattacchione did not indicate to him that the insurance component was in place but rather that he (Mr. Mattacchione) would be speaking to CIL about possible arrangements for parties to participate in underwriting and acting as brokers for the auto and home insurance arrangements.

50. MA stated that he had received the documentation that NW planned to use at the October 7th meeting. He advised NW that he was not happy with the materials they had prepared. It appeared from MA’s testimony that he and VC may have had a different understanding as to the extent to which insurance arrangements were in place or about to be settled.

51. MA confirmed that he had received some membership subscriptions regarding the Program following the October 7th meeting hosted by NW, although the subscriptions were only for membership in the Program and not for insurance coverage. He said he retained them in his office and did not submit them to Axccess.

52. On cross-examination MA testified that he is not a director of Axccess. In response to questions regarding the capacity in which he got involved with Axccess he stated that he was marketing the product on behalf of Axccess as “sales and marketing for Axccess Lifestyle Corporation”. MA also testified on cross-examination that the Subscription Agreement for Home and Auto Insurance, which included specific reference to Lloyd’s and Chesterfield, was designed by him and Mr. Mattacchione but that it was withdrawn after the NW presentation.

53. MA conceded on cross-examination that the home and auto insurance feature was the most attractive one in the minds of attendees (agents) at the meetings as a way to attract members to the Program having regard to the very significant potential savings in auto insurance premiums.

54. MA acknowledged emails sent to agents involved in marketing the Program on Friday, October 7th and Thursday, October 13th which identified him, with respect to the “Axccess Lifestyle Membership” arrangement as “Director of Marketing”. He acknowledged that the invitation to the Rockfort meeting on September 28th had come from Axccess and that had been done at the request of Rockfort. He further acknowledged that he wrote the invitation. Mr. Mattacchione spoke at the Rockfort meeting. However, Mr. Mattacchione had consistently told him that nothing had been finished regarding the home and auto insurance component.

55. On further cross-examination MA acknowledged that the invitation to the NW presentation in October referred to the involvement of Lloyd’s and Chesterfield. He had concerns about the PowerPoint material prepared for the NW meeting. However, the biggest concern he expressed at the time to NW was not the references to the roles of Lloyd’s and Chesterfield but rather to the use of logos of Lloyd’s, Chesterfield and the major chartered bank without first having obtained their permission to the use of their logos. He agreed that most of the PowerPoint presentation was consistent with the information he gave to NW.

56. On redirect, MA said that he understood CIL was in discussions on behalf of Axccess with Lloyd’s and Chesterfield and that Mr. Mattacchione had indicated to him the arrangements were moving forward.

h. Testimony of JH

57. The next witness for the Applicants was JH of CIL Canadian Intermediaries Limited (“CIL”). JH testified that CIL was a brokerage agent that on behalf of Axccess was seeking to make arrangements with Chesterfield, and through Chesterfield to approach Lloyd’s, with respect to the auto and home insurance aspect of the Program. He has known Mr. Mattacchione since 2004 or 2005 and has provided or arranged underwriting services for Mr. Mattacchione and one of his other companies.

58. In the summer of 2011 he was asked to source a conduit for a product being the auto and home insurance component of the Program and, in that regard, endeavoured to approach Chesterfield. Ultimately he had a meeting in August 2011 with AMcG, the senior officer of Chesterfield based in London, U.K., while AMcG was in Philadelphia, and sent him related materials. Apparently an earlier version of the materials had been set to AMcG in London but had not been read by him. The main topic of the August meeting was the proposed arrangement with Axccess. He had thought AMcG had a positive reaction to the concept of the proposed arrangement but had to discuss it internally within Chesterfield. JH then told Mr. Mattacchione it would take a while for any arrangement to be worked out and for appropriate compliance to be undertaken. He further understood that Lloyd’s was “potentially” to be the insurer.

59. In October Mr. SS, the president of CIL, was advised by Chesterfield that it had learned the package was being marketed prematurely and it would take at least until January to put the pieces in place. Accordingly JH, on behalf of CIL, issued a “Cease and Desist” communication to Mr. Mattacchione with respect to the home and auto insurance component.

60. JH testified that Mr. Mattacchione was “horrified” to learn that the proposed insurance arrangements with Lloyd’s and Chesterfield were public. His objective was merely to determine if there was an appetite for the program in the public by approaching the agents. There was no aim to sell insurance at that early stage. There had been a “disconnect”. JH stressed that it was always understood by him and Mr. Mattacchione that there needed to be a legal structure in place including compliance with FSCO requirements.

61. On cross-examination JH confirmed that CIL is a licensed RIBO broker. He had understood that, after he had provided the materials to AMcG, Chesterfield would be seeking an insurer but testified there was no commitment to obtain insurance through Lloyd’s and there was no indication Lloyd’s would be the insurer. He acknowledged that the Ontario insurance field is highly regulated and an insurer needs to file rates, have the rates approved and obtain a whole range of other approvals before an insurance product can be brought to market in the province - a process which could take several months and perhaps up to a year.

62. JH testified that he did not think any Canadian insurer involved in auto and home insurance would be likely to underwrite the product being put forth by Axccess. Accordingly, it had been necessary to look to the London market and see if an alternative arrangement could ultimately be structured in compliance with applicable laws in Ontario.

63. JH further testified on cross-examination that in light of the expressions of concern received by Lloyd’s and Chesterfield after the October 7th meeting, any involvement of Chesterfield clearly had stopped and there was no realistic prospect of the arrangements going ahead with Lloyd’s or Chesterfield.

i. Testimony of Robert Mattacchione

64. The final witness for the Applicant was Robert Mattacchione. He testified that he began to work on the Program in 2010 and 2011. At first it was just a concept and the creation of the product only gradually accelerated. The aim was to create a concept with value for Canadians.

65. In September of 2011 he “brought in” MA to the project. He testified that MA was not the “marketing manager” and that in fact there were no Axccess employees. Any employees worked for an affiliated corporation controlled by Mr. Mattacchione which was not involved in the project. Every agent involved in the creation of the product was to be on his own, however, MA was regarded by Mr. Mattacchione as his and Axccess’ “head agent”. He denied that MA had any authority to bind Axccess but acknowledged that MA did have responsibility to communicate to agents including providing a description of the product being put together.

66. In the summer of 2011 he was introduced to NW by MA. By the late summer of 2011 the product was still evolving reflecting input from MA as well as from JH of CIL. The objective in late September was to have a “soft launch” to an agent group. The result was the September 28th meeting arranged by Rockfort. Mr. Mattacchione stressed several times during his testimony that the program was “not ready for public consumption”, a minimum of 2,000 people were needed, based on the input received from CIL. Eventually a formal application process would have to be followed to identify the group. He also stressed the value of numerous other benefits to potential members to the Program.

67. He stated that he wanted to avoid any risk to the public and no applications for membership or insurance were received at Axccess. According to Mr. Mattacchione the arrangement went “off the rails” in the October 7th meeting arranged by NW having regard to the materials prepared by NW, referring to involvement by Lloyd’s and Chesterfield, that apparently were provided at that meeting. The eventual result was an immediate “Cease and Desist” direction to him by JH of CIL relating to the indicated involvement of Lloyd’s and Chesterfield. No vehicle was put in place to collect funds and no attempt was made to collect funds from the public. He had understood that AMcG of Chesterfield knew of the proposed project.

68. Mr. Mattacchione expressed the view that everything that had been done by him and Axccess was appropriate. He always had the public interest in mind and disagrees with any order based on an allegation that he or Axccess were being deceptive.

69. On cross-examination Mr. Mattacchione acknowledged that he is the sole director of Axccess which was incorporated formally on September 20, 2011. He stated that it was MA who was “promoting” the Axccess Membership and Mr. Mattacchione and Axccess did not deal with the agents.

70. Mr. Mattacchione acknowledged that the documentation presented at the hearing indicated that MA signed off as “Sales and Marketing” in respect of ICC Axccess and that ICC Global Corp. was a separate company owned and controlled by Mr. Mattacchione. He also acknowledged that MA signed off on the documentation as “Sales and Marketing” re “ICC Axccess Launch” but stated that MA was not actually performing that role for Axccess.

71. On cross-examination Mr. Mattacchione, further acknowledged that he had worked with MA to review and settle certain “Subscription Conditions” relating to “Home and Auto Coverage” (Tab 3 of the binder of documents submitted by the Superintendent) and he and MA had sat down to discuss how best to answer questions at the meeting. That documentation specifically referred to “Coverage Provided by Lloyd’s Canada” and to “Clearance and Brokerage Provided by Chesterfield Insurance Brokers Ltd. and Canadian Intermediaries Ltd.” He acknowledged the very low proposed premium for auto insurance coverage as one of the most attractive benefits, but not the only benefit, available under the proposed Program.

72. Mr. Mattacchione acknowledged that the invitation to the meeting arranged by Rockfort on September 28th was prepared by him jointly with MA before it was sent out to the agents. That material did not refer to Lloyd’s or Chesterfield. It was tentatively part of a “discussion” document with the agents and was not intended to be a sales document, i.e. it was intended to generate interest from agents and it was not yet ready for the public.

73. In regard to the NW materials, Mr. Mattacchione testified that his concern was regarding the use of names and logos of Lloyd’s and Chesterfield in a fashion that had not yet received their approval. He stressed that under the Agency Agreement with NW all printed materials had required prior approval of Axccess in writing which had not been granted. He further testified that MA’s statements or information to NW about Lloyd’s and/or Chesterfield were “in error” but were not intended to be misleading.

74. In response to a question from one of the members of the Tribunal’s Panel as to why Mr. Mattacchione felt there was some need to refer to Lloyd’s and Chesterfield in the material, Mr. Mattacchione indicated that the arrangement was, according to the input from CIL, only three months away from being finalized.

E. ANALYSIS

1) Factual Observations

75. Our findings of the key facts, having regard to the testimony and the documentation submitted, are summarized as follows:

76. Axccess had begun a program of promoting, initially through the recruitment of agents and other financial advisors, the sale of “memberships” in the Axccess Lifestyle Membership Program.

77. The home and auto insurance component of the membership was a key, and probably the most attractive, feature of the proposed membership package to agents and other financial advisors who were being recruited to market memberships having particular regard to the favourable rates and other terms relating to auto insurance set out in the promotional material involvement circulated to the potential agents and other financial advisors at the two meetings held. The apparent role of Lloyd’s and Chesterfield was a key feature at the time of the October 7th meeting.

78. The promotional materials provided at the two meetings were not intended for circulation beyond the agents and other financial advisors at the time. However, the material provided at the October 7th NW meeting indicated the insurance coverage would be provided for the home and auto insurance portion of the arrangement by Lloyd’s through Chesterfield. That promotional material was prepared by NW on the basis of the understanding provided to it by MA who was regarded by NW, and apparently also by Rockfort, as the head agent and marketing director for Axccess. MA was acknowledged by Mr. Mattacchione to be the Applicant’s head agent and he worked closely with Mr. Mattacchione on the structuring of the insurance aspect of the program and the agency agreement and in communication with NW on behalf of the Applicants. Mr. Mattacchione also worked with MA on the “Subscription Conditions” referring to the auto insurance coverage which referred to coverage provided by Lloyd’s Canada and to insurance and brokerage provided by Chesterfield.

79. Written approval for the circulation of the materials at the NW meeting in October was not received by NW from the Applicants pursuant to the Agency Agreement. However, NW understood from the limited input it received from MA, the agent of the Applicants with respect to the Program, that those materials generally were satisfactory, including the reference to the involvement of Lloyd’s and Chesterfield, although NW clearly had been told by MA that the Insurance Subscription Form was not to be circulated.

80. NW acted vis a vis the attendees at the October 7th, 2011 meeting as agent of the Applicants at that meeting regardless of whether as between it and Axccess it should have obtained written authorization from Axccess relating the PowerPoint presentation and other written materials. NW was an agent of the Applicant Axccess with respect to the Program.

81. Axccess does not hold, never held and did not understand itself to have any authority from Lloyd’s that would allow it to bind or accept insurance, or issue insurance documentation on behalf of Lloyd’s.

82. The possibility of Chesterfield acting to provide brokerage support for the Axccess home and auto insurance product was under preliminary discussion with CIL (on behalf of Axccess) and Chesterfield in the U.K. although no arrangement had yet been entered into. Chesterfield never advised CIL or Axccess that Lloyd’s would be the insurer. In any event Lloyd’s had not been approached to determine if it would become involved in providing the insurance and it does not provide such auto insurance in Canada.

83. The use of the Chesterfield and Lloyd’s names and logos on the promotional material was false and misleading and without their explicit permission. In addition, the promotional materials, relating to the terms, benefits or advantages of the auto insurance available or to be made available as provided at the October 7th meeting with agents and other financial advisors were inaccurate and misleading to the effect that they indicated membership in the Axccess Lifestyle Program would carry with it the opportunity to purchase low cost insurance from Lloyd’s through Chesterfield. Accordingly that activity clearly constituted an unfair or deceptive act or practice under section 438 of the Act as presented in Paragraph 5 of Section 1 of the related Regulation.

84. Although apparently only a factor in the context of an interim order under section 441(4) of the Act the public was at risk notwithstanding that the marketing of the arrangement was still at an early stage and there was not yet an invitation to the public to purchase the insurance product offered in the promotional materials beyond agents and other financial advisors. The product did not yet exist.

2) Decision

76. We have concluded that it is appropriate a cease and desist order be issued by the Superintendent or this Tribunal under the Act in order to stop the offering of the home and auto insurance product by Axccess.

77. The Act does not require, before an order can be issued, an actual offering to the public beyond agents and other financial advisors. The Act is concerned with the protection of the public through the provision of regulatory services that protect the public interest and enhance public confidence in the regulated sectors as indicated in section 3 of the FSCO Act. It seems contrary to common sense to assume that the Superintendent should have waited until there was an actual offering to potential Axccess members before stepping in to issue a cease and desist order in the face of promotional material that constituted, or might reasonably be expected to result in a state of affairs that would constitute, an unfair or deceptive act or practice being clearly false and misleading at the time it was issued to agents and other financial advisors who were being recruited to market Axccess Lifestyle Memberships including the very significant auto insurance component.

78. Axccess, in combination with its chief agent MA, who held himself out as its marketing director and was acknowledged to be its chief agent relating to the program, may not have intended to begin immediately to market the auto insurance portion of the Axccess Lifestyle Membership Program to potential members at the time of the September and October 2011 meetings. However, it clearly was pursuing a course of conduct, set in motion by Axccess through its selected agents, that constituted, or might reasonably expect it to result in a state of affairs that would constitute, an unfair or deceptive act or practice in accordance with subsection 441(a) of the Act. Specifically, the indication in the promotional materials presented at the October 7th meeting, and in the responses given by MA on behalf of Axccess at that meeting relating to the role to be played by Lloyd’s and Chesterfield, constituted a “false or misleading statement as to the terms, benefits or advantages of any contract or policy of insurance issued or to be issued.” No contract or policy of insurance had yet been, or was likely to be, issued by Lloyd’s. It was clear throughout all of the testimony that the favourable rates and other terms of the proposed auto insurance component of the Axccess Lifestyle membership was a significant benefit or advantage of the proposed contract or policy of insurance. Given the broad mandate given to MA by Axccess, whose initial communications to NW were understood as justifying the inclusion of the names of Lloyd’s and Chesterfield in its presentation, Axccess cannot insulate itself from the UDAP by asserting that it never intended that matters be presented to possible future marketers as they in fact were. Given that the marketing was entrusted to sales oriented persons, it is not surprising that any suggested, if yet unattained sales feature might be seized upon to enhance the appearance of the product.

79. Accordingly, pursuant to section 441(8) of the Act, we agreed that an Order should be issued by the Tribunal as described in 441(2)(a) of the Act, i.e. to cease or refrain the Applicants from proceeding with the auto insurance component of the proposed Axccess Lifestyle membership program without first complying with the applicable legislation and regulatory arrangements in Ontario including the Act.

80. The Superintendent has acknowledged that the arrangements with Lloyd’s and with Chesterfield clearly will not be proceeding and accordingly it is not necessary to refer in the order to those companies.

F. ORDER

81. The Tribunal orders that Mr. Mattacchione and Axccess, and any agents, representatives and affiliates and successors thereof, immediately cease and continue to refrain from making and/or publishing any statements, written or otherwise to the effect that Axccess or any of its successors or affiliates can arrange for, secure, or facilitate insurance coverage, whether provided by Lloyd’s or by any other person or entity, until a contract of insurance providing for such coverage has been put in place in compliance with applicable laws and regulations. This Order shall be effective on and from the date of the Order.

DATED at the City of Toronto, this 1st day of June, 2012.

“John M. Solursh” John M. Solursh Chair of the Tribunal and of the Panel

“Ralph Scane” Ralph Scane Member of the Tribunal and Member of the Panel

“Heather Gavin” Heather Gavin Member of the Tribunal and Member of the Panel

Footnotes

1. 1There is no dispute among the parties that the chartered bank, whose logo was also noted in the material circulated at the October meeting had never entered into any arrangement with Axccess as contemplated in the materials. However, the alleged involvement by the bank is not part of the proceedings in this matter under the Act.
2. 2The materials for the September 28th meeting, according to subsequent testimony by Mr. Mattacchione and by JH referred to below of CIL Canadian Intermediaries Limited were prepared by a combination of JH, MA and Mr. Mattacchione. Those materials did not identify any involvement of Lloyd’s or Chesterfield.
3. 3While that evidence in itself was hearsay and therefore to be given very little weight, it is consistent with the subsequent testimony of JH of CIL.