Citation: Lam v. Ontario (Superintendent Financial Services), 2016 ONFST 23 Decision No. I0685-2016-1 Date: 2016/11/28

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 March 17, 2016 against Serena S. Lam (aka Sheila S. Lam) 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.

SERENA S. LAM (aka SHEILA S. LAM)

and

BEFORE:

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

For the Applicant – Serena Lam

For the Superintendent of Financial Services – Michael Spagnolo

DATE HEARD: October 21, 2016

1The Applicant in this matter, Serena Lam, used to be licensed as a life insurance and accident and sickness insurance agent (hereinafter referred to as a “life insurance agent”) under the Insurance Act, R.S.O. 1990, c. I.8. On March 17, 2016, a delegate of the Superintendent of Financial Services (“Superintendent”) issued a Notice of Proposal (“NOP”) in which he proposes to impose an administrative monetary penalty of $2,500 on Ms. Lam. In the NOP, it is alleged that the Applicant failed to maintain errors and omissions (“E&O”) insurance between September 9, 2014 and January 24, 2016, a period of approximately 16½ months during which she was licensed to carry on business as a life insurance agent.

2For reasons that follow, I conclude that Ms. Lam has contravened the E&O requirement and that her explanations do not excuse her contravention or call for any reduction in the proposed fine. Thus, I order the Superintendent to carry out his proposal to impose a monetary penalty of $2,500 on Ms. Lam.

II. issues

3The Pre-hearing Conference Memorandum and Notice of Hearing that were prepared for this matter identify three issues:

a. First, did Ms. Lam lack E&O coverage while licensed to sell life insurance, contrary to section 13 of Ontario Regulation 347/04? If so, how long was the lapse?

b. Second, if the answer to issue (a) is yes, is the imposition of an administrative monetary penalty (AMP) appropriate, considering subsection 441.2(1) of the Insurance Act? Will it promote compliance with requirements established under the Insurance Act and/or prevent Ms. Lam from deriving an economic benefit from her non-compliance?

c. Third, if the answer to issue (b) is yes, what is the appropriate amount of the AMP taking into account the criteria contained in section 4 of Ontario Regulation 408/12?

III. facts

4Most 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. Counsel for the Superintendent relied exclusively on the evidence contained therein; he did not call any witness during the Hearing. The Applicant testified under affirmation and was subject to cross-examination.

5Having reviewed this evidence, I make the following findings of fact on a balance of probabilities:

a. At all relevant times, Ms. Lam was licensed as a life insurance agent under the Insurance Act. Her licence expired on January 24, 2016, and she has not applied to renew her licence.

b. On December 14, 2015, a Senior Compliance Officer (“SCO”) from the Financial Services Commission of Ontario (“FSCO”) conducted an onsite examination of Ms. Lam’s life insurance business systems and practices. The SCO requested that Ms. Lam produce proof of her E&O coverage.

c. Ms. Lam produced a certificate of coverage from the Westport Insurance Corporation. This document had a policy number (WLFON010681800) and named “Serena Lam” as the insured person. The effective date of coverage was “FROM: September 9, 2015 – TO: September 9, 2016”.

d. On its face, the E&O certificate provided by Ms. Lam was suspicious. Indeed, the number “5” in “September 9, 2015” and the number “6” in “September 9, 2016” are in a font that is visibly different. Because of this, the SCO contacted the insurance company that had purportedly issued the certificate in order to verify the validity of the document.

e. On December 22, 2015, a representative of the Westport Insurance Corporation informed the SCO that the policy identified in the certificate provided by Ms. Lam had, in fact, expired on September 9, 2014. The insurer representative supplied written notices of cancellation of E&O coverage that had been sent to Ms. Lam on September 30, 2014 and to FSCO on October 17, 2014.

f. During the Hearing, Ms. Lam testified that she did not receive the notice sent by Westport Insurance Corporation on September 30, 2014, because she was no longer living at the address to which this letter was sent. In addition, she testified that she did not detect the difference in the font that is used on the certificate of coverage, when she received this document from the person to whom she had delegated the task of securing her E&O coverage.

g. On January 18, 2016, as a follow-up to the onsite examination, the SCO sent an email and letter attachment to Ms. Lam. This email identifies three items that require Ms. Lam’s attention, including the following: “E&O Insurance – FSCO takes steps to verify E&O insurance policies held by life insurance agents, and we have found that your policy with Westport Insurance Corporation (WLF4ON010681800) lapsed on September 9, 2014. I’m not sure if you are aware of this?” The SCO asks Lam to respond with an explanation on or before January 29, 2016.

h. On January 21, 2016, Ms. Lam contacted the SCO and stated that she was surprised to learn that her E&O coverage had expired on September 9, 2014, and that the policy had not been renewed anytime thereafter. According to her explanation, she had asked a friend to renew her E&O insurance and had given her money for this purpose.

i. During the Hearing, Ms. Lam testified that the friend in question was her son’s girlfriend, a woman named “Joanne” who is now living in Hong Kong. According to her testimony, Ms. Lam asked Joanne to take care of her insurance needs after her mother died – in August of 2013 – and she gave her money to pay the annual premiums. She testified that she gave Joanne $800 in the fall of 2013, approximately $840 in September 2014, and $900 in September 2015, and was led to believe that her E&O coverage had been renewed.

j. In addition, Ms. Lam testified that Joanne is the person who gave her the E&O certificate with the altered date of coverage and that, when she eventually confronted Joanne about the falsified certificate, she admitted that her policy had not been renewed beyond September 9, 2014, and that she had altered the original certificate. In essence, Ms. Lam testified that she had been the victim of a fraud perpetrated by her son’s girlfriend on two occasions, in September 2014 and again in September 2015.

k. Ms. Lam was not working in the insurance industry during the time she did not have E&O coverage, and did not write any new business during this time.

l. Ms. Lam did not take any steps to surrender her life insurance and accident and sickness insurance agent licence after September 9, 2014 up to the expiration of her licence on January 24, 2016.

m. Ms. Lam was without valid E&O coverage from September 9, 2014 to January 24, 2016, a period of approximately 16½ months.

IV. analysis

a. Statutory Framework

6 Ontario Regulation 347/04 imposes a number of obligations on anyone who holds a licence to sell life insurance. 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 more than twenty years ago, by means of Ontario Regulation 760/94.

7 Section 13 of Ontario Regulation 347/04 is prescribed for the purpose of imposing an administrative monetary penalty under section 441.3 of the Insurance Act: see Ontario Regulation 408/12, section 2, schedule 2, item 26. Thus, provided the evidence establishes that Ms. Lam has breached the E&O requirement and that a monetary penalty would promote one of the two statutory objectives listed in subsection 441.2(1) of the Insurance Act, the penalty would be justified. In such a case, the only remaining issue would be the amount of the fine.

8The maximum penalty for an individual who fails to comply with the E&O requirement is $50,000: see Ontario Regulation 408/12, subsection 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 paragraph 13 of my Reasons.

b. Issue 1: Was there a Contravention?

9The facts outlined in paragraph 5 of my Reasons establish that Ms. Lam failed to comply with the E&O requirement for a period of approximately 16½ months, namely, between September 9, 2014 (the date on which her policy expired) and January 24, 2016 (the date on which her licence expired). The E&O requirement established by Ontario Regulation attaches to the licence itself. Thus, all licensed life insurance agents must meet this requirement, whether or not they actually conduct any insurance business during the relevant timeframe.

b. Issue 2: Is the Imposition of an Administrative Monetary Penalty Appropriate?

10Having established that Ms. Lam breached section 13 of Ontario Regulation 347/04, the next issue is whether the imposition of an administrative monetary penalty is appropriate, considering subsection 441.2(1) of the Insurance Act. Would a monetary penalty promote compliance with requirements established under the Insurance Act and/or prevent Ms. Lam from deriving an economic benefit from her non-compliance?

11To date, the Tribunal has released several decisions that involve comparable allegations as to the ones made against Ms. Lam – that is, several cases in which life insurance agents have challenged proposals to impose monetary penalties for contraventions of the E&O requirement. In each case, without a single exception, the Tribunal has concluded that the imposition of a monetary penalty on a licensee who fails to comply with the E&O requirement meets both statutory objectives listed in subsection 441.2(1) of the Insurance Act. In light of this consistent jurisprudence, “once it is established that a licensee has contravened the E&O requirement, this person faces a difficult challenge: to convince the Tribunal that a general AMP is not an appropriate sanction”: Beeksma v. Ontario (Superintendent Financial Services), 2016 ONFST 3 at para. 24 (“Beeksma”).

12In this case, Ms. Lam testified that she did not derive any economic benefit from her non-compliance, because she paid the equivalent of her annual E&O premiums to someone else and asked this person to take care of her insurance needs. However, even if I accept her testimony, an administrative monetary penalty is still justified on the basis of general deterrence. Indeed, as recently observed, life insurance agents cannot delegate their statutory obligations to others: Beeksma, supra at para. 19. It was incumbent upon Ms. Lam, the person to whom the Superintendent issued a licence to sell life insurance, to take all necessary steps to maintain E&O coverage between September 9, 2014 and January 24, 2016. She failed to do so and thereby exposed the public to a risk of potential harm. In these circumstances, a penalty would send an important message to the members of the industry: life insurance agents must personally ensure that they are in compliance with the E&O requirement.

c. Issue 3: What is the Appropriate Amount of the Penalty?

13In determining the amount of Ms. Lam’s monetary penalty, the Tribunal must take into account only the five criteria listed in section 4(2) of Ontario Regulation 408/12. Each case is unique and must be decided on its own facts, as established by the evidence adduced during the Hearing. Having reviewed this evidence, I make the following findings with respect to the application of these criteria to the circumstances of this case:

a. To what degree was Ms. Lam’s contravention intentional, reckless or negligent? I find that Ms. Lam was negligent in the circumstances of this case; she did not personally ensure that she maintained E&O coverage between September 9, 2014 and January 24, 2016. Although I believe Ms. Lam, when she says that she asked for help in September 2013, after the death of her mother, I cannot overlook the fact that the contravention took place more than a year later. At that point, she exercised poor judgment in relying on a third party to renew her insurance policy, assuming for now that this is indeed what happened. To be sure, my finding of negligence does not depend on whether Ms. Lam received the notice of cancellation of coverage letter sent by the Westport Insurance Corporation on September 30, 2014. Regardless of whether she received this notice, she was negligent during the relevant timeframe.

b. To what extent did Ms. Lam’s contravention cause harm or potential harm to others? There is no evidence that Ms. Lam carried on business as a life insurance agent between September 9, 2014 and January 24, 2016. However, potential harm to the public existed because she remained licensed and neither FSCO nor the Superintendent had any practical way of supervising her day-to-day activities during this period. In fact, if I were to accept Ms. Lam’s testimony in full, I would be compelled to find that Ms. Lam believed that she was insured during the period in question – a finding that would substantially increase the potential harm to which the public was exposed.

c. To what extent did Ms. Lam try to mitigate any loss or take other remedial action? There is no evidence that Ms. Lam took any remedial measures to bring herself within compliance of the E&O requirement between September 9, 2014 and January 24, 2016. On the contrary, when asked to provide proof of coverage for the period in question, she supplied FSCO with a certificate of coverage that is suspicious on its face. Ms. Lam testified that she received this document from her son’s girlfriend, by email, and did not notice any problem. However, she did not introduce into evidence the alleged electronic message and any reasonable person, looking at the document, would detect the discrepancy described in subparagraph 5d) of these Reasons. In these circumstances, I find that Ms. Lam knew or she should have known that the certificate of coverage supplied to FSCO was false.

d. To what extent did Ms. Lam derive or reasonably might have expected to derive, directly or indirectly, any economic benefit from her contravention? I find that Ms. Lam 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 16½ months. To be sure, I accept as true some parts of Ms. Lam’s testimony. For example, I believe her when she says that she asked her son’s girlfriend (Joanne) to take care of her E&O coverage after her mother died and that she gave her $800 to pay the 2013-2014 annual premium. However, in the absence of any corroborating evidence, I cannot give any weight to her assertion that she paid Joanne another $840 in September 2014 and another $900 in September 2015 in order to renew her policy.

e. Has Ms. Lam committed any other contraventions during the previous five years? This criterion has no application in this case. In the NOP, there is no suggestion that Ms. Lam has, in the past, failed to comply with any other requirement under the Insurance Act or with any other financial services legislation of Ontario or of any other jurisdiction.

14In view of these findings, I conclude that the figure proposed by the Superintendent is entirely appropriate.

V. ORDER

15The Tribunal orders the Superintendent to impose an administrative monetary penalty in the amount of $2,500 as against Ms. Lam.

Dated at Toronto, this 28th day of November, 2016.

“Denis Boivin” Denis Boivin