FINANCIAL SERVICES TRIBUNAL

Citation: Dennis v. Ontario (Superintendent Financial Services), 2016 ONFST 18 Decision No. I0697-2016-1 Date: 2016/11/07

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, and 441.3;

AND IN THE MATTER OF a Notice of Proposal to Impose an Administrative Monetary Penalty dated June 7, 2016 against Trisha Dennis issued by the Executive Director, Licensing and Market Conduct Division by delegated authority from the Superintendent of Financial Services;

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

B E T W E E N:

TRISHA DENNIS

APPLICANT

and

SUPERINTENDENT OF FINANCIAL SERVICES

RESPONDENT

BEFORE:

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

WRITTEN SUBMISSIONS:

For the Applicant – Trisha Dennis, Self-represented

For the Superintendent of Financial Services – Michael Spagnolo, counsel

REASONS FOR DECISION

I. INTRODUCTION

1Trisha Dennis is currently the holder of a Life Insurance and Accident and Sickness Insurance Agent Licence (Licence #08102486) which expires on February 2, 2018.

2On June 7, 2016, the Superintendent of Financial Services (“the Superintendent”) issued a Notice of Proposal (“NOP”) under sections 441.1, 441.2 and 441.3 of the Act to impose an administrative monetary penalty (“AMP”) of $1,700 on Trisha Dennis (“Ms. Dennis”) for her failure to comply with the requirement to have errors and omissions insurance (“E&O”) coverage at all times while licensed as a life insurance and accident and sickness insurance agent, specifically during the period from August 14, 2014 to October 6, 2015.

3Ms. Dennis requested a hearing before the Financial Services Tribunal (“Tribunal”) on July 4, 2016. In her Request for Hearing, Ms. Dennis admitted to not maintaining E&O for the time period described above and further conceded as much in an agreed statement of facts filed with this Tribunal.

4At a pre-hearing teleconference held on August 11, 2016, the parties agreed to a written hearing in lieu of an oral hearing, to be held before a single person panel.

5The Tribunal orders the Superintendent to carry out his proposal to impose a penalty of $1,700 for the reasons set out below.

II. ISSUES

6The notice of hearing issued by the Tribunal states that the purpose of the hearing is to determine the following issues:

(a) Did Ms. Dennis fail to maintain E&O coverage from August 14, 2014 to October 6, 2015 while she was licensed as an insurance agent under the Act, as required under section 13 of Ontario Regulation 347/04?

(b) If the answer to issue (a) is yes, is the imposition of the proposed AMP appropriate under section 441.3 of the Act, and will it serve the purposes of subsection 441.2(1) of the Act?

(c) If the answer to issue (b) is yes, what is the appropriate quantum of penalty, if any, or other regulatory measure to be applied?

7Ms. Dennis conceded that the answer to issue (a) is yes.

III. FACTS

8The Tribunal accepts the facts as agreed to by the parties in the filed Agreed Statement of Facts and supported by Ms. Dennis’ submissions as follows:

a. Ms. Dennis was previously licensed as a life insurance and accident and sickness insurance agent, and her prior licence expired on February 2, 2016. Ms. Dennis did not apply to renew her licence prior to its expiry.

b. On February 5, 2016, Ms. Dennis submitted an application to renew her licence. Upon receiving and reviewing Ms. Dennis’ most recent licence renewal application on February 5, 2016, Financial Services Commission of Ontario (“FSCO”) staff discovered that Ms. Dennis’ Errors and Omissions (“E&O”) coverage information had not been updated since it expired on August 14, 2014.

c. On February 18, 2016, FSCO contacted Ms. Dennis requesting her to provide proof of E&O coverage from August 14, 2014 to present.

d. On February 24, 2016, Ms. Dennis contacted FSCO to explain that there would be an E&O coverage gap due to the fact that she was not active in the business from August 2014 to October 2015.

e. Ms. Dennis believed that she was not able to do any business for at least a year as per the rules of the sponsoring organization she was in, and as such did not maintain E&O coverage during that time.

f. On February 29, 2016, FSCO received proof of E&O coverage from October 6, 2015 to August 14, 2016.

g. Ms. Dennis was without E&O coverage from August 14, 2014 to October 6, 2015.

9I accept Ms. Dennis’ submission that she did not engage in any insurance business during the period that she was uninsured and received no direct economic benefit. No evidence was offered by the Superintendent to suggest otherwise.

10I accept the Applicant’s submission that she believed that she did not require E&O coverage while she was not working in the industry. I also find that she took no steps to surrender her licence.

IV. STatutory Framework

11Previous decisions of the Tribunal have detailed the statutory framework applicable to this situation. A detailed framework was first outlined in White¹ as adopted by the Tribunal in its related decisions and which I will not repeat in its entirety but which I adopt.

12Life 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.

13Subsection 392.8(1) of the Act outlines the circumstances in which regulations under the Act may be made in respect of an agent’s licence, in particular, subsection 392.8(1)(n) with respect to E&O insurance. Section 13 of Regulation 347/04 (Agents) made under the Act states that a life insurance agent shall maintain:

a. errors and omissions insurance in a form approved by the Superintendent in an amount of at least $1,000,000 in respect of any one occurrence with extended coverage for loss resulting from fraudulent acts; or

b. another form of financial guarantee in a form approved by the Superintendent in an amount of at least $1,000,000 in respect of any one occurrence.

14According to section 441.3(1) of the Act, if the Superintendent is satisfied that a person has contravened the Act or a regulation, the Superintendent may impose an AMP on that person as may be prescribed. The imposition of AMPs under the regime came into effect on January 1, 2013 for contraventions occurring on or after that date, and the Tribunal has issued a series of decisions with respect to its application.

15Section 441.2(1) of the Act states that an AMP may be imposed under sections 441.3 or 441.4 for either of the following purposes:

a. to promote compliance with the requirements established under the Act;

b. to prevent a person from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under the Act.

16In the case of an individual, under subsection 441.5(1) of the Act, the maximum amount of the administrative penalty imposed under section 441.3 shall not exceed $100,000 or such lesser amount as may be prescribed for a prescribed requirement established under the Act. A contravention of section 13 of Regulation 347/04 – being the E&O requirement – is listed as item 26 of Schedule 2 of Regulation 408/12, and when read together with section 3(2) of Regulation 408/12, $50,000 is the maximum AMP that may be imposed on an individual.

17In determining the amount of the AMP to be imposed under section 441.3 of the Act, the Superintendent, and now the Tribunal must take into account only the five criteria listed in section 4(2) of Regulation 408/12. These 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 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 with any other financial service legislation of Ontario or of any jurisdiction during the preceding five years by the person.

18Under section 441.3(6) of the Act, 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.

V. Analysis

19Issue (a) having been conceded in the affirmative, issue (b) requires me to determine if the imposition of the proposed AMP is appropriate under section 441.3 of the Act, and will it serve the purposes of subsection 441.2(1) of the Act?

20I find the answer is yes; an AMP is appropriate in the circumstances and will serve the purposes of subsection 441.2(1) of the Act. Following the reasoning in White and later Tribunal decisions, I agree that licensed agents “must be aware of and abide by the requirements generally, and specifically in respect of E&O insurance within their own regulated sector. There is no exception under the Act for the requirement to have E&O coverage”.²

21Further E&O coverage exists to protect the consumer, and a lack of insurance erodes public confidence in the regulatory system. Similar to our findings in Mirza³, an agent must comply with the requirement or surrender his or her licence. There was no evidence that Ms. Dennis was incapable of obtaining coverage or surrendering her licence. She did not obtain coverage until she applied to renew her licence in 2016. As noted in Beeksma, “Life insurance agents cannot plead ignorance of the law when faced with allegations that they failed to fulfil their regulatory duties, nor can they delegate their professional responsibilities to others.”⁴

22The imposition of a penalty in this instance will have the potential for deterring other life agents from contravening the requirement for insurance coverage and to promote compliance with the Act. It also prevents agents from deriving an economic benefit from contravention, such as salary, commissions or the savings resulting from their failure to pay the related insurance premiums. In this case, the savings in premiums otherwise payable by Ms. Dennis while licensed are an indirect economic benefit.

23Ms. Dennis offered no alternative argument as to the appropriateness of the penalty, nor did the Superintendent offer another alternative penalty. No evidence was submitted as to rare or unusual circumstances in which it would be inappropriate to impose a monetary penalty.⁵ The strict standard of liability imposed by section 13 of Ontario Regulation 347/08 does not go so far as to restrict or revoke an individual’s licence or ability to earn income, and is fitting in the circumstances.

24Consequently I find that both conditions under section 441.2(1) apply to this case, and that Ms. Dennis be subject to an AMP. Having determined an AMP is appropriate, as a practical matter only the amount of penalty to be determined under issue (c) remains.

25In determining the amount of AMP, I find as follows:

a. The degree to which the contravention or failure was intentional, reckless or negligent. Ms. Dennis took no steps until she re-entered the insurance industry in September 2015 to secure E&O coverage. The duty to obtain continuous E&O coverage is the agent’s under the Act. While she may have been unsure of the need for such coverage while inactive in the industry, Ms. Dennis did not surrender her licence. There is no provision in the Act or regulations allowing an insurance agent to suspend his or her E&O coverage while licensed. I find Ms. Dennis’s failure to secure continued coverage was both reckless and negligent in this instance.

b. The extent of the harm or potential harm to others resulting from the contravention or failure. While I have no evidence that Ms. Dennis was engaged in soliciting new business or that clients were harmed, I find that there was potential harm to clients as she remained licensed in the applicable period.

c. The extent to which the person or entity tried to mitigate any loss or to take other remedial action. I find Ms. Dennis took no action to obtain coverage during the period August 14, 2014 to October 6, 2015, until she resumed her insurance business activities. Ms. Dennis also took no action to surrender her licence. Unlike the facts in Beeksma⁶, FSCO had no knowledge during the relevant period that her E&O coverage had been cancelled nor was Ms. Dennis in contact with FSCO about her lack of coverage until 2016, after her application for licence renewal.

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. It appears that Ms. Dennis did not engage in any insurance business in this uninsured period. However Ms. Dennis derived an indirect economic benefit of not having to pay E&O premiums during the disputed period. No evidence was proffered as to her likely annual renewal premiums.

e. Any other contraventions or failures to comply with a requirement established under the Act or with any other financial service legislation of Ontario or of any jurisdiction during the preceding five years by the person. There is no evidence of any other contraventions or failures to comply with the Act or with other financial services legislation in Ontario by the Applicant.

26While no formulaic response to the amount of penalty is fixed, in Mirza the Tribunal found it appropriate that the penalty also reflect a deterrent element beyond any saved premium or other economic benefits such as commission income.⁷ As noted in previous Tribunal decisions, the Tribunal finds a penalty is appropriate even in cases of first offences and even if the agent is not working. No exceptional circumstances were presented in this case to argue for a different result. Ms. Dennis provided no submissions as to the amount of penalty. Consequently I see no reason to alter the amount of AMP proposed in the Superintendent’s NOP of $1,700.00.

VI. ORDER

27The Tribunal orders the Superintendent to carry out his proposal against Trisha Dennis as set out in the NOP dated June 7, 2016 to impose an AMP in the amount of $1,700.00.

Dated at Toronto, this 7th day of November, 2016.

“Florence A. Holden” Florence A. Holden

Footnotes

1. 1White v. Ontario (Superintendent Financial Services), 2014 ONFST 9, paragraphs 8-19.
2. 2White, op cited, paragraph 22.
3. 3Mirza v. Ontario (Superintendent Financial Services), 2016 ONFST 9, paragraphs 18-19.
4. 4Beeksma v. Ontario (Superintendent Financial Services), 2016 ONFST 3, paragraph 19.
5. 5White, op cited, paragraph 26.
6. 6Beeksma, op cited, paragraph 9.
7. 7Mirza, op cited, paragraph 22.