Iqbal v. Ontario (Superintendent Financial Services), 2015 ONFST 6

FINANCIAL SERVICES TRIBUNAL

Citation: Iqbal v. Ontario (Superintendent Financial Services), 2015 ONFST 6 Decision No. I0556-2014-1 Date: 2015/02/17

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 the Notice of Proposal to Impose an Administrative Monetary Penalty against Mr. Khawaja Zafar Iqbal, dated June 27, 2014 issued by the Superintendent of Financial Services;

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

B E T W E E N:

KHAWAJA ZAFAR IQBAL

APPLICANT

and

SUPERINTENDENT OF FINANCIAL SERVICES

RESPONDENT

BEFORE:

Denis Boivin Chair of the Panel and Vice-Chair (Acting) of the Tribunal

APPEARANCES:

For the Applicant – Khawaja Zafar Iqbal

For the Superintendent of Financial Services – Douglas Lee, Counsel

Date HearD:

December 17, 2014

REASONS FOR DECISION

I. INTRODUCTION

1The Applicant in this matter, Khawaja Zafar Iqbal, is licensed to carry on business as an insurance agent. On June 27, 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 $1,500 on Mr. Iqbal. 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. Iqbal contravened the E&O requirement and that his explanations do not excuse his contravention or call for any reduction in the proposed fine. Thus, I order the Superintendent to carry out his proposal to impose a general AMP of $1,500 on the Applicant.

II. STATUTORY FRAMEWORK

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

4Ontario 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 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 is not new; it was introduced 20 years ago, by means of Ontario Regulation 760/94.

5Section 13 of Ontario Regulation 347/04 is prescribed for the purpose of imposing a general AMP under section 441.3 of the Insurance Act: see Ontario Regulation 408/12, section 2, schedule 2, item 26. Therefore, provided the evidence establishes that Mr. Iqbal has breached the E&O requirement and that a monetary fine would promote one of the objectives listed in section 441.2(1) of the Insurance 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 Insurance 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

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

a. Did the Applicant lack E&O coverage while licensed as a life insurance agent? If so, how long was the lapse?

b. Is the imposition of the proposed general AMP appropriate? Will it promote compliance with requirements under the Insurance Act and/or prevent the Applicant from deriving an economic benefit from his non-compliance?

c. What is the appropriate amount of the general AMP, taking into account the five criteria listed in section 4 of Ontario Regulation 408/12?

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 John Allin, a Regulatory Discipline Officer with the Licensing and Market Conduct Division of the Financial Services Commission of Ontario (“FSCO”). Mr. Allin was available throughout the proceeding to answer questions about his affidavit. In addition, the Tribunal heard oral testimony from Mr. Iqbal.

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

a. At all material times, Mr. Iqbal was licensed as a life insurance agent under the Insurance Act. He was first licensed on June 14, 2005, and his licence was most recently renewed on May 9, 2014, for a two-year term.

b. On July 12, 2012, FSCO received written notice from Liberty International Underwriters that Mr. Iqbal’s E&O coverage had been cancelled, effective July 9, 2012, at the request of Mr. Iqbal. A flag was added to his record.

c. Mr. Iqbal’s licence expired without renewal on July 22, 2013.

d. On April 30, 2014, Mr. Iqbal applied to renew his life insurance agent licence. FSCO reviewed his application and the flag on his record was noted.

e. On May 1, 2014, Ms. Stephanie Williams, a Licensing and Registration Specialist with FSCO, sent an email to the Applicant. In this message, Mr. Iqbal was asked to provide proof of E&O coverage from July 9, 2012 to July 22, 2013, and a list of all insurance business conducted during this period.

f. On May 6, 2014, Mr. Iqbal responded to Ms. Williams’ request for information. In an email, he told her that he did not have any E&O certificates for the period in question, but that he did not conduct any business during this time. He cited “personal circumstances” to explain his lack of coverage. He said, “My father was quite ill, I was travelling back and forth from Pakistan to see him and did not have the means to get my certificates.”

g. The explanation given by the Applicant in his email of May 6, 2014, is partly untrue. When testifying under oath, Mr. Iqbal acknowledged that he did not travel to Pakistan to see his father until December 2013. According to his testimony, he was involved with his father’s care on a regular basis between July 9, 2012 and July 22, 2013, but remained in Canada during this period.

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 Insurance 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 Insurance Act allowing the Superintendent to impose an alternative penalty, such as a general AMP. Sections 441.1 – 441.6 of the Insurance Act were adopted in order to rectify this situation.

13To date, the Tribunal has heard three 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), 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 3½ months and 5½ months, respectively. In those two cases, the contraventions had taken place after January 1, 2013. By contrast, 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 administrative penalties’ regime. However, the Superintendent is not relying on this pre-2013 contravention in order to justify his NOP. He is relying on the 6¾ months during which Mr. Iqbal was without E&O coverage, between January 1, 2013 and the expiry of his licence on July 22, 2013.

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 Insurance Act. These comments may be summarized 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 Insurance 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 Insurance Act. This provision is section 13 of 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 July 9, 2012. Second, both purposes listed in section 441.2(1) of the Insurance 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. Iqbal 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. Iqbal do not disclose unusual or rare circumstances that argue against the imposition of a general AMP. Initially, he told FSCO that he was travelling back and forth from Pakistan in order to care for his sick father “and did not have the means” to pay for his E&O coverage. However, during his testimony, he stated that he remained in Canada throughout the period in question, and he did not offer any alternative reasons to justify his contravention.

16In determining the amount of the Applicant’s monetary penalty, the Tribunal must take into account only the five criteria listed in section 4(2) of Ontario Regulation 408/12. 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. Iqbal’s contravention intentional, reckless or negligent? The Applicant has been licensed as a life insurance agent since June 14, 2005. He knows about the E&O requirement and apparently complied with this requirement until July 9, 2012, when his E&O coverage was terminated at his own request. He remained uninsured for a full year, prior to the expiry of his licence on July 22, 2013, and he did not secure coverage until he applied to renew his licence in the spring of 2014. Given these circumstances, I infer that he intentionally failed to maintain E&O coverage.

b. To what extent did Mr. Iqbal’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 July 22, 2013. However, potential harm to the public existed because he remained licensed 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. Iqbal 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 July 22, 2013. However, he cooperated with FSCO, when Ms. Williams requested information with respect to this period.

d. To what extent did Mr. Iqbal 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 6¾ months. In his affidavit, Mr. Allin states that the yearly cost of E&O coverage ranges from $650 to $1,200. On the basis of this evidence, it is reasonable to infer that Mr. Iqbal obtained a benefit ranging from $365 to $675 during this period of time.

e. Has Mr. Iqbal 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 requirement under the Insurance Act or with any other financial services legislation.

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

VI. order

18The Tribunal directs the Superintendent, by order, to carry out his proposal to impose an administrative monetary penalty of $1,500 on the Applicant.