Citation: Lin v. Ontario (Superintendent Financial Services), 2015 ONFST 17 Decision No. I0617-2014-1 Date: 2015/05/20

IN THE MATTER OF the Insurance Act, R.S.O. 1990, c. I.8, as amended (the “Act”), in particular sections 441.1, 441.2, 441.3;

AND IN THE MATTER OF a Notice of Proposal to Impose an Administrative Monetary Penalty dated October 17, 2014 issued by the Superintendent of Financial Services against Hong Da (“Chris”) Lin;

AND IN THE MATTER OF a Hearing in accordance with subsection 441.3(5) of the Insurance Act, R.S.O. 1990, c. I.8.

HONG DA (“CHRIS”) LIN

and

RESPONDENT

BEFORE:

John Solursh Member of the Tribunal and Member of the Panel

APPEARANCES:

For the Applicant – Hong Da (“Chris”) Lin

For the Superintendent of Financial Services – Joe Nemet, Counsel and

Adrienne Ho, Student at Law

Date HearD: April 21, 2015

REASONS FOR DECISION

I. INTRODUCTION

1The Applicant in this matter, Hong Da (“Chris”) Lin (“Mr. Lin”) is licensed to carry on business as an insurance agent. On October 17, 2014, the Superintendent of Financial Services (“Superintendent”) issued a Notice of Proposal (“NOP”) in which he proposes to impose a general administrative monetary penalty (“general AMP”) of $1,600 on Mr. Lin. In the NOP it is alleged that the Applicant failed to comply with one of the primary requirements associated with his licence, namely, the requirement to maintain errors and omissions (“E&O”) insurance.

2For reasons that follow, I conclude that Mr. Lin, as he acknowledged, contravened the E&O requirement and that his explanations do not excuse his contravention or justify any reduction in the proposed fine. Thus, I order the Superintendent to carry out his proposal to impose a general AMP of $1,600 on the Applicant.

II. Statutory Framework

3The licence issued to Mr. Lin falls within the class listed in clause 393(2)(a) of the Insurance Act, R.S.O. 1990, c. I.8, (the “Act”). For present purposes, I shall refer to this licence as a “life insurance agent licence”.

4 Ontario Regulation 347/04 imposes a number of obligations on anyone who holds a life insurance agent licence. In particular, according to section 13, the licensee shall maintain E&O coverage of at least $1 million per occurrence in a form approved by the Superintendent, with extended coverage for loss resulting from fraudulent acts, or in some other form of financial guarantee in a form approved by the Superintendent in an amount of at least $1 million per occurrence. This requirement was introduced approximately 20 years ago, by means of Ontario Regulation 790/94.

5 Section 13 of Ontario Regulation 347/04 is prescribed for the purposes of imposing a general AMP under section 441.3 of the Act: see Ontario Regulation 408/12, section 2, schedule 2, item 26. Therefore, provided the evidence establishes that Mr. Lin has breached the E&O requirement (which he has acknowledged and does not dispute) and that a monetary fine would promote one of the objectives listed in section 441.2(1) of the Act, a general AMP would be an appropriate disciplinary measure.

6The maximum penalty for an individual who fails to comply with the E&O requirement is $50,000; see Ontario Regulation 408/12, section 3(2)(b), schedule 2, item 26. Section 4 of this Regulation states that the Superintendent is authorized to determine the amount of the general AMP up to this limit having regard only to the five criteria listed in section 4. These criteria are discussed below in the context of the Tribunal’s analysis.

7When a hearing is conducted pursuant to subsection 441.3(5) of the Act, the Tribunal must reach its own conclusions. The Tribunal may, by order, direct the Superintendent to carry out the proposal, with or without changes, or substitute its opinion for that of the Superintendent.

III. Issues

8Two questions are identified in the Pre-hearing Conference Memorandum that was prepared for this proceeding:

a. Did Mr. Lin fail to maintain continuous E&O insurance coverage from January 1, 2013 to September 28, 2013 as required by section 393(21)(g.1) of the Act and section 13 of the Ontario Regulation 347/04 made under this Act?

b. If the answer to issue (a) is yes, should an AMP be imposed and if so in what amount?

IV. Facts

9Most of the evidence that is relevant to these issues is contained in an Agreed Statement of Facts (“ASF”) and an Agreed Book of Documents (“ABD”) filed with the consent of both parties and received by the Tribunal. One of the documents in the ABD is a six-page affidavit, sworn by Elena Schneider, a Regulatory Discipline Officer with the Licensing and Market Conduct Division of the Financial Services Commission of Ontario (“FSCO”). Ms. Schneider was available throughout the proceeding to answer questions about her affidavit. In addition, the Tribunal heard oral testimony from Mr. Lin. As requested by Mr. Lin, a Cantonese speaking interpreter was available and provided assistance throughout the hearing.

10Having reviewed this evidence, the Tribunal makes the following findings of fact:

a. At all material times, Mr. Lin was licensed as a life insurance agent under the Act. He was first licensed on September 29, 2009, and his licence was most recently renewed on July 9, 2014, for a two year term. Relevant to the proceedings, Mr. Lin was licensed from September 29, 2011 to September 28, 2013.

b. FSCO received written notice from Primerica Life Insurance Company of Canada (“Primerica”) that Mr. Lin’s E&O coverage would lapse effective February 24, 2012.

c. Mr. Lin’s licence expired without renewal on September 28, 2013.

d. In May, 2014, Mr. Lin applied to renew his life insurance agent licence.

e. On June 10, 2014, FSCO requested Mr. Lin to provide copies of his E&O certificates. In this message, Mr. Lin was asked to provide proof of E&O coverage from February 24, 2012 through to the current date of his pending licence application.

f. On February 2, 2014, Mr. Lin advised FSCO via email that he did not have E&O coverage during the period from February 24, 2012 to May 29, 2014 as he did not conduct any business during that time. He stated that he did not think he needed E&O coverage.

g. In regard to Mr. Lin’s May 2014 application to renew his licence, Primerica provided FSCO with proof of E&O coverage from April 30, 2014 until April 30, 2015.

h. FSCO issued Mr. Lin’s licence effective July 9, 2014.

i. Mr. Lin acknowledged that his E&O coverage had expired by the time he had left Canada to work in China. He also testified that he did not transact any insurance business in Canada while he did not have E&O coverage but had sufficient access via computer to transact such business if he had wanted to do so.

j. Although Mr. Lin was licensed as an agent and, as he acknowledged, was required to maintain continuous E&O coverage, he was without coverage for the purposes of administering an AMP for the period from January 1, 2013 to September 28, 2013, inclusively – a period of roughly 9 months.

11These facts are sufficient to dispose of the issues raised by this proceeding. The Tribunal heard evidence on other matters as well. Some of this evidence will be discussed below in the analysis.

V. Analysis

12The E&O requirement is not a new obligation; it has existed for more than twenty years. However, prior to January 1, 2013, the disciplinary measures available to the Superintendent under the Act were relatively limited. A life insurance agent who failed to comply with the E&O requirement could have his or her licence suspended or revoked, but there were no provisions in the Act allowing the Superintendent to impose an alternative penalty, such as a general AMP. Sections 441.1 – 441.6 of the Act were adopted in order to rectify this situation.

13As at the date of the hearing, the Tribunal had heard three other cases in which a life insurance agent has faced a general AMP for contravening the E&O requirement: White v. Superintendent Financial Services, 2014 ONFST 9 (White), Sy v. Superintendent Financial Services, 2014 ONFST 14 (Sy), Iqbal v. Ontario (Superintendent of Financial Services), 2015 ONFST 6 (Iqbal), and the present case. In White and Sy, the Tribunal ordered the Superintendent to impose penalties of $1,300 and $1,500, respectively, on licensed agents who were without E&O coverage for periods of 3 ½ months and 5 ½ months, respectively. In those two cases, the contraventions had taken place after January 1, 2013. In the case of Mr. Iqbal, he was without E&O insurance since July 9, 2012 – almost six full months prior to the enactment of the new AMP regime, however, the Superintendent in Iqbal was not relying on this pre-2013 contravention in order to justify his NOP. He relied on the 6 ¾ months during which Mr. Iqbal was without E&O coverage between January 1, 2013 and the expiry of his licence on July 22, 2013. In Iqbal the Tribunal ordered the Superintendent to carry out his proposal to impose a general AMP of $1,500 on Mr. Iqbal.

14In White and Sy, the Tribunal made a number of general observations regarding the E&O requirement and the use of general AMPs under the Act. These comments were summarized in paragraph 14 of Iqbal as follows:

a. Life insurance agents have voluntarily chosen to engage in a business that requires a licence and which involves regulation. They agree in advance to adhere to strict standards of conduct, which they are presumed to be aware of, including the requirement to maintain E&O coverage at all times. See White, supra at paras. 22 and 28; Sy, supra at para. 16.

b. The purpose of the E&O requirement is to protect the public and enhance its confidence in the life insurance industry. In particular, the requirement ensures that a fund is available to compensate any member of the public who suffers financial loss due to the negligence or fraudulent activity of a life insurance agent. See White, supra at para. 22-23; Sy, supra at para. 16.

c. The E&O requirement attaches to the licence itself. All licensed life insurance agents must meet this requirement, whether or not they actually conduct any insurance business. See White, supra at para. 23; Sy, supra at para 17.

d. The imposition of a general AMP on a licensee who fails to comply with the E&O requirement meets the two purposes listed in section 441.2(1) of the Act. First, the penalty has a deterrent value, both for the licensee and for other life insurance agents. Second, the penalty prevents the licensee from making any premium savings. See White, supra at paras. 24-25; Sy, supra at para. 19.

e. There may be special circumstances in which it would be inappropriate to impose a general AMP for a contravention of the E&O requirement. See White, supra at para. 26; Sy, supra at para. 18.

15Applying these principles to the findings of facts made above, the Tribunal concludes that a general AMP is wholly appropriate in this case. First, the Applicant contravened a provision that is “prescribed” for the purposes of imposing a general AMP, within the meaning of section 441.3(1) of the Act. This provision is section 13 of the Ontario Regulation 347/04. For present purposes, the Applicant’s contravention occurred between January 1, 2013 and July 22, 2013, even though his lack of coverage went back to February 24, 2012. Second, both purposes listed in section 441.2(1) of the Act would be advanced by imposing a general AMP on the Applicant. He would be deprived of the economic benefit that he derived from his contravention, and the fine would send a message to Mr. Lin and other life insurance agents that the E&O requirement is not optional – an important message, given the purpose of this requirement. Third, the explanations offered by Mr. Lin do not disclose unusual or rare circumstances that argue against the imposition of a general AMP. He previously had E&O coverage and let it lapse. Therefore, he clearly knew of the need to maintain coverage while licensed as a life insurance agent. He acknowledged during his testimony that he failed to maintain insurance coverage while licensed including for present purposes, the period from January 1, 2013 to July 22, 2013. He further testified that his objective in opposing the NOP was to have the amount of the proposed general AMP reduced.

16In determining the amount of the Applicant’s general AMP, the Tribunal must take into account only the five criteria listed in section 4(2) of Ontario Regulation 408/12. Ability to pay a penalty is not one of the listed criteria and therefore is not a relevant factor in determining the amount of an AMP. Having reviewed the evidence, the Tribunal makes the following findings with respect to the application of these criteria to the circumstances of this case:

a. To what degree was Mr. Lin’s contravention intentional, reckless or negligent? The Applicant has been licensed as a life insurance agent since September 29, 2009. He knew about the E&O requirement and apparently complied with this requirement until February 24, 2012, when his E&O coverage was terminated. He remained uninsured for more than a year and a half, prior to the expiry of his licence on September 28, 2013, and he did not secure coverage until he applied to renew his licence in the spring of 2014. Given these circumstances, I have concluded that he intentionally failed to maintain E&O coverage.

b. To what extent did Mr. Lin’s contravention cause harm or potential harm to others? There is no evidence that the Applicant carried on business as a life insurance agent between January 1, 2013 and September 28, 2013. However, potential harm to the public existed because he remained licensed during that 9 month period and neither FSCO nor the Superintendent had any practical way of supervising his day-to-day activities during this period.

c. To what extent did Mr. Lin take any remedial action? There is no evidence that the Applicant took any remedial measures to bring himself within compliance of the E&O requirement between January 1, 2013 and September 28, 2013. Mr. Lin obtained new E&O coverage only shortly before he submitted his licence renewal application in May 2014.

d. To what extent did Mr. Lin derive any economic benefit from his contravention? The Applicant obtained a modest economic benefit by virtue of retaining a licence to carry on business as a life insurance agent, while avoiding payment of E&O premiums for 9 months. In her affidavit, Ms. Schneider stated that the yearly cost of E&O coverage ranged from $650 to $1,200. Ms. Schneider’s affidavit does not make it clear whether that estimate is up to date. No contrary evidence was presented at the hearing. On the basis of this evidence, it is reasonable to infer that Mr. Lin obtained a benefit ranging from $500 to $900 during this period of time.

e. Has Mr. Lin committed any other contraventions during the previous five years? This criterion has no application in the circumstances of this case. There was no suggestion that the Applicant has, in the past, failed to comply with any other financial services legislation.

17In view of these findings, the Tribunal concludes that the amount of $1,600 proposed by the Superintendent is appropriate.

VI. Order

18The Tribunal directs the Superintendent, by order, to carry out his proposal to impose an administrative monetary penalty of $1,600 on the Applicant.

Dated at Toronto, this 20th day of May, 2015.

“John Solursh” John Solursh