Citation: Lubay v. Ontario (Superintendent Financial Services), 2015 ONFST 25 Decision No. I0596-2014-1 Date: 2015/07/23

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

AND IN THE MATTER OF a Notice of Proposal to Impose an Administrative Monetary Penalty dated July 25, 2014 issued by the Superintendent of Financial Services against Nestor Lubay;

AND IN THE MATTER OF a Hearing in accordance with subsection 441.3(5) of the Act.

and

RESPONDENT

BEFORE:

Florence A. Holden Chair (Acting) of the Tribunal and Chair of the Panel

APPEARANCES:

For the Applicant – Nestor Lubay, Self-represented

For the Superintendent of Financial Services – Stephen Scharbach

Date HearD: July 14, 2015

REASONS FOR DECISION

I. INTRODUCTION

1This matter comes before me as a result of a Request for Hearing filed by the Applicant in response to a Notice of Proposal (“NOP”) dated July 25, 2014 to Impose an Administrative Monetary Penalty (“AMP”) in the amount of $1,000 on the Applicant. The Superintendent seeks to impose the penalty due to the alleged failure of Mr. Lubay, as a licensed life insurance agent, to fulfill his statutory obligation to give the Superintendent requested information about his activities related to the business of insurance pursuant to section 442.3(1)(4) of the Act, specifically his failure to respond to a market conduct questionnaire of licensed life insurance agents conducted by the Superintendent in 2013.

2At the pre-hearing conference held on April 9, 2015, and also reaffirmed at the hearing itself, Mr. Lubay indicated that he did not dispute the alleged contravention, but only the proposed penalty.

3Having reviewed the evidence of both parties as outlined in a signed Agreed Statement of Facts and Documents, filed July 14, 2015 and considered the submissions before me, I order the Superintendent, pursuant to section 441.3(6) of the Act, to carry out his proposal, as issued, for an AMP in an amount of $1,000 as against the Applicant. The reasons for my decision follow.

II. BACKGROUND

4As this Tribunal has previously noted in earlier decisions, administrative monetary penalties under the Act were introduced into law effective January 1, 2013 to allow the Financial Services Commission of Ontario (“FSCO”), the regulator, to address contraventions in the law more efficiently, to promote compliance and to prevent financial benefit to violators. AMPs can be imposed for breaches of order, undertakings and licence conditions, as well as for contraventions of statutory provisions. This case is one of a large number of similar fact cases before the Tribunal.

5As noted in the Qin decision¹, the purpose of the mandatory questionnaire was intended to assist FSCO, using evidence-based results, in assessing the process insurance agents used in making recommendations and selling life insurance policies and products at the point of sale. Part of FSCO’s purposes under the FSCO Act in the regulation of the insurance industry is to “provide regulatory services that protect the public interest and enhance public confidence in the regulated sectors”.² The questionnaire is meant to assist the Superintendent in fulfilling FSCO’s legislated obligations to the public, through the development of a comprehensive regulatory approach that would formulate and promote best practices on product suitability of life insurance products.

III. THE ISSUES

6The following two issues will be determined by this Tribunal:

a. Is the imposition of the proposed AMP appropriate to serve one or both of the purposes set out in section 441.2(1) of the Act?

b. What is the appropriate amount of the AMP taking into account the criteria contained in subsection 4(2) of Ontario Regulation 408/12?

7There appear to be no other preliminary matters and the parties had previously accepted the jurisdiction of the Tribunal.

IV. The FACTS

8Based on an agreed statement of facts and an agreed book of documents filed by the parties, whose contents I accept as proof therein, as well as the evidence of Mr. Lubay, I find the following key facts:

a. At all material times, Mr. Lubay held and currently holds a life insurance and accident and sickness agent licence (“life agent licence”) issued under the Act by the Superintendent. During the period in question, from September 2013 to date, Mr. Lubay has admitted in testimony that he remains an active life agent, at least on a part-time basis and earned related income.

b. On September 27, 2013, the Superintendent sent an email to all licensed life agents, including Mr. Lubay, informing them that FSCO will be launching the online questionnaire on October 15, 2013, and that they may be selected as part of the sample to complete it. Agents were informed that selected agents would be notified via email and that, if selected, completion of the questionnaire was mandatory.

c. The September 27, 2013 email, and all of the emails and registered letters described below, was sent by FSCO to Mr. Lubay using the email address that FSCO had on file for Mr. Lubay. Mr. Lubay provided that address to FSCO in his most recent licence renewal application on May 3, 2012.

d. On October 15, 2013, the Superintendent sent the initial email request to Mr. Lubay and the other selected agents, informing them that they had been selected to complete the online questionnaire by November 15, 2013 and providing a link to it.

e. On October 28, 2013, the Superintendent sent a reminder email to all of the agents who had not completed the questionnaire by that date, including Mr. Lubay, reminding them to complete the questionnaire no later than November 15, 2013. The email again included the link to the questionnaire, stated that completion of the questionnaire was mandatory under the Act, and that failure to complete it by the due date may result in regulatory action.

f. On November 4, 2013, the Superintendent sent a second reminder email to all of the agents who had not completed the questionnaire by that date, including Mr. Lubay again including the link and reminding them to complete it no later than November 15, 2013. Mr. Lubay did not complete the questionnaire.

g. On November 18, 2013, the Superintendent sent a third reminder email to Mr. Lubay and all of the agents who had not completed the questionnaire by that date. The email stated that the questionnaire was required to have been completed by November 15 and asked each agent to complete it no later than November 19, after which regulatory action may be taken. A link to the questionnaire was again included.

h. Mr. Lubay did not respond to any of the emails described above and did not complete the questionnaire. Under cross-examination he admitted that he had in fact received the emails and read them, but simply ignored the request.

i. On December 2, 2013, the Superintendent sent a registered letter to Mr. Lubay’s mailing address according to FSCO’s records. Mr. Lubay provided that address to FSCO on March 22, 2013.

j. The letter pointed out that despite the several reminders, Mr. Lubay did not complete the questionnaire and the Superintendent was considering imposing a penalty. Mr. Lubay was invited to provide an explanation by December 17, 2013. Mr. Lubay did not respond. On cross-examination, Mr. Lubay admitted that he was aware of this letter and was still living at that address.

k. On March 10, 2014, the Superintendent sent a second registered letter to Mr. Lubay, to the same mailing address. That letter pointed out that despite the emails and the first registered letter, Mr. Lubay had not responded to the questionnaire. The letter stated that Mr. Lubay was being given a final opportunity to complete the questionnaire which had been re-opened until March 26, 2014 for that purpose. However, failure to respond by that date would result in regulatory action.

l. However, the March 10, 2014 letter was unclaimed and returned to FSCO. On cross-examination, Mr. Lubay admitted that he moved to another unit within the same building in March of 2013, and does not recall the second letter. In any case, he did not respond to it.

m. On July 25, 2014, the Superintendent issued a notice of proposal to impose an administrative monetary penalty on Mr. Lubay for his failure to respond to the Superintendent’s requests for information.

n. Mr. Lubay filed a Request for Hearing on September 10, 2014.

V. STATUTORY FRAMEWORK AND ANALYSIS

9As noted in earlier similar cases before this Tribunal, life insurance agents have voluntarily chosen to participate in a business that requires a licence and involves regulation. They agree to subject themselves to a regulatory regime. In order to perform his regulatory functions, the Superintendent must be able to question agents and insurers with respect to their business activities.

10The ability of the Superintendent to issue the questionnaire and require the agent to respond follows from sections 441.1(1), 442.1 and 442.3 of the Act which read in part as follows:

Section 442.1:

(1) The Superintendent or a person designated by the Superintendent may direct an enquiry to any of the following persons about contracts, settlements or adjustments under contracts, the financial affairs of an insurer, the acts and practices of an insurer, agent, or adjuster or such other matters as may be specified by the Superintendent: …

An agent or adjuster who holds or held a licence under this Act;…

(5) A person to whom an inquiry is directed shall answer promptly, explicitly, and completely and shall do so in the manner and within the period specified by the Superintendent or the designate.”

Section 442.3 (1) and (3) state:

(1) Upon the request of the Superintendent or a person designated by the Superintendent, a person to whom an inquiry may be directed under section 442.1 shall give the Superintendent or designate full information, and shall provide records, about the following matters:….

Activities related to the business of a person who holds or held a licence under this Act….

(3) A person to whom a request is directed under this section shall answer promptly, explicitly and completely and shall do so in the manner and within the period specified by the Superintendent or the designate.

11Based on these findings, I find that Mr. Lubay did fail to provide the Superintendent with the information requested via a questionnaire initially sent on October 15, 2013 and contrary to s. 442.3(1)(5) of the Act.

12The first issue before me is: Is the imposition of the proposed AMP appropriate to serve one or both of the purposes set out in section 441.2(1) of the Act? I find the answer to be yes.

13 Subsection 441.2(1) of the Act states that an AMP may be imposed for either of the following purposes:

To promote compliance with the requirements established under the Act.
To prevent a person or entity from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under this act.

14In this case, I find that the imposition of a monetary penalty will promote compliance with the Act in general, and with the obligation to respond to the Superintendent’s requests for information in particular, by demonstrating to Mr. Lubay and other similarly situated licensees that non-compliance with statutory requirements will attract a negative monetary consequence. A finding in this case that an AMP may fulfil the purpose of s. 441.2(1)(1) of the Act is sufficient in my view to impose an AMP on Mr. Lubay. In fact, at the hearing Mr. Lubay did not object to a penalty, only to the amount.

15The remaining issue before me is: What is the appropriate amount of the AMP taking into account the criteria contained in subsection 4(2) of Ontario Regulation 408/12?

16The maximum general administrative penalty that may be imposed by the Superintendent on an individual in these circumstances is $100,000 for a failure to comply under s.442.1 and 442.3 of the Act as listed in Schedule 1 to Ontario Regulation 408/12. The proposed penalty in this case was $1,000.

17In determining the amount of the penalty up to that maximum, the Superintendent and in a hearing de novo, the Tribunal, is required by Ontario Regulation 408/12 to consider only 5 specified criteria. Personal financial circumstances of the applicant are not a consideration. The criteria are:

a. The degree to which the contravention or failure was intentional, reckless or negligent.

b. The extent of the harm or potential harm to others resulting from the contravention or failure.

c. The extent to which the person or entity tried to mitigate any loss or to take any other remedial action.

d. The extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.

e. Any other contraventions or failures to comply with a requirement established under the Act or any other financial services legislation of Ontario or with any jurisdiction during the preceding five years by the person.

18After reviewing the evidence and these criteria, I have made the following further findings:

a. On the first criteria, I find Mr. Lubay’s actions were intentional. Not only did he remain engaged in the industry, he admitted that he was aware of the mandatory questionnaire and when given multiple opportunities to reply he took no action. Although Mr. Lubay expressed some evidence of health and personal issues during the relevant time frame, they were not exceptional and did not appear to substantially interfere with his ability to conduct business, albeit perhaps at a reduced pace.

b. On the second criteria, while no direct harm to clients was adduced, I find that indirect harm to others may result in these circumstances. As noted in earlier cases before this Tribunal on similar facts³, the failure to respond to a request by the Superintendent or his delegate results in additional costs of regulation, which costs are ultimately passed on to the industry and likely the public. As well, such actions, as noted above, frustrate the Superintendent’s ability to collect information that will permit him to effectively fulfill FSCO’s legislated mandate to develop a comprehensive regulatory approach to ensure that life agents identify and recommend suitable insurance products to the public.

c. On the third issue, I find that Mr. Lubay took no steps to mitigate or take remedial action. In fact he deliberately ignored the requests of the Superintendent, while carrying on business as a life agent.

d. On the fourth issue, I find no evidence that Mr. Lubay received an economic benefit from the contravention of the Act.

e. On the fifth issue, I find that there was no evidence of any other previous contraventions under this Act or other financial services legislation.

19Based on all of these findings, I find no reason to interfere with the Superintendent’s decision in this matter.

VI. ORDER

20I hereby order the Superintendent to carry out his proposal and impose an administrative monetary penalty in the amount of $1,000 as against the Applicant, Mr. Lubay.

Dated at Toronto, this 23rd day of July, 2015.

“F. Holden” Florence A. Holden

Footnotes

Qin v. Ontario (Superintendent Financial Services), 2015 ONFST 22, paragraph 4.
Financial Services Commission of Ontario Act, 1997, section 3(a).
Qin, ibid., paragraph 20(b).