Mirza v. Ontario (Superintendent Financial Services), 2016 ONFST 9

Citation: Mirza v. Ontario (Superintendent Financial Services), 2016 ONFST 9 Decision No. I0637-2015-1 Date: 2016/03/24

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 on Shahid Ahmed Mirza dated June 12, 2015, by the Superintendent of Financial Services and issued on June 15, 2015;

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.

and

BEFORE:

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

For the Applicant – Shahid Mirza, self-represented

For the Superintendent of Financial Services – Stephen Scharbach, counsel

I. INTRODUCTION

1The Applicant has held a life insurance and accident and sickness insurance agent licence under the Act since January 20, 1999. His licence number is 99055172.

2On June 15, 2015, the Superintendent of Financial Services (“Superintendent”) issued a Notice of Proposal (“NOP”) to Impose an Administrative Monetary Penalty (“AMP”) in the amount of $1,250.00 against Shahid Ahmed Mirza for contravening a requirement under section 392.8(1)(n) of the Act and Section 13 of Regulation 347/04 to have errors and omissions (“E&O”) insurance during the period from August 14, 2014 to December 19, 2014. A Request for Hearing was filed by Mr. Mirza on July 6, 2015. A hearing was subsequently scheduled for February 9, 2016.

3At the request of the Applicant and consent of the Superintendent, at another pre-hearing teleconference held on February 4, 2016, the Tribunal consented to a hearing to be held in writing before the Tribunal in lieu of the oral hearing scheduled for February 9, 2016. A schedule for the service and filing of written submissions and legal authorities was set and those documents form the basis of this decision.

4The Tribunal orders the Superintendent to carry out his proposal as set out in the NOP for reasons outlined below.

II. PRELIMINARY MATTERS

5Having previously agreed to the jurisdiction of the Tribunal in this matter, no other preliminary issues were raised.

III. ISSUES

6The following issues were previously defined by the Tribunal at the pre-hearing teleconference held on September 15, 2015:

a. Did Mr. Mirza fail to maintain continuous errors and omissions coverage contrary to subsection 392.8(1) of the Act and section 13 of Regulation 347/04?

b. If so, is the imposition of the proposed administrative monetary penalty appropriate under section 441.3 of the Act and to serve the purposes of subsection 441.2(1) of the Act?

IV. Facts

7The essential facts are not in dispute. Based on a review of all the evidence before me, including the filed agreed statement of facts and the submissions, I make the following findings of fact:

a. Mr. Mirza holds a life insurance and accident and sickness insurance agent licence number 99055172, first issued by the Superintendent on January 20, 1999.

b. Mr. Mirza last renewed his licence on January 20, 2015 for a two-year period that expires on January 19, 2017, subject to renewal.

c. On December 8, 2014, the Financial Services Commission of Ontario (“FSCO”) received notice that Mr. Mirza’s E&O coverage had been cancelled effective August 14, 2014. FSCO staff contacted the Applicant that day by email to request that he provide proof of E&O coverage by December 19, 2014.

d. I accept the Applicant’s submission that he contacted his sponsoring company on receipt of FSCO’s email and was advised that he had no E&O coverage due to insufficient funds in his rolling commission account to cover the cost of the insurance. He confirmed to FSCO on December 17, 2014 that he lacked E&O coverage since August 14, 2014; that he was in the process of obtaining coverage; and that he had not carried on life insurance business during that uninsured period.

e. Mr. Mirza then secured new E&O coverage effective December 19, 2014 which was valid until February 1, 2015 and he provided FSCO with proof of that coverage. He confirms that he was without E&O coverage from August 14, 2014 to December 19, 2014, a period of roughly four months.

f. Mr. Mirza has provided some limited evidence of various on-going health issues beginning in 2001 to September 2015, for which he has been under medical care. By his own admission he has been in receipt of provincial disability payments since 2010, and he alleges that he has been unable to work since December 2010. The doctor’s letters he provided from his family physician do not, in my view, go so far as to provide an opinion or certificate in respect of Mr. Mirza’s ability to work. In the first letter provided by his physician, the period in question was from June 2014 to December 2014 only. His doctor merely states that “(Mr. Mirza) states that he has not been able to work during this time”. The evidence falls far short of establishing that Mr. Mirza was too incapacitated to deal with his E&O insurance renewal in 2014.

g. In Mr. Mirza’s submissions he relates that he unilaterally stopped contact with his sponsoring company in 2012, although he continued to maintain E&O coverage until 2014. I find that there is no evidence to suggest that he was so disabled that he could not obtain E&O coverage in 2014; in fact he was able to do so quickly when the lack of coverage was brought to his attention, and had presumably ensured coverage during 2010-2014.

h. In the absence of evidence to the contrary, I accept Mr. Mirza’s submission that although he was a licensed agent, he did not engage in any insurance business during the period that he was uninsured and received no direct economic benefit.

i. I also find that Mr. Mirza seemed aware of the need for E&O coverage as a life insurance agent and that he took no apparent steps to surrender his licence. In his Request for Hearing he indicated that he intended to maintain his E&O coverage in future as his health has improved.

V. STatutory Framework

8Previous decisions of the Tribunal have detailed the statutory framework applicable to this situation. A detailed framework was first outlined in White¹ which I adopt.

9I note that 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.

10 Subsection 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.

11According to section 441.3(1) of the Act, if the Superintendent is satisfied that a person has contravened the Act or a regulation, then the Superintendent may impose an AMP on that person. The imposition of AMPs under the regime came into effect on January 1, 2013.

12 Section 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.

13In 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.

14In determining the amount of the AMP to be imposed under section 441.3 of the Act, the Tribunal must take into account only the five criteria listed in section 4(2) of Regulation 408/12 just as the Superintendent was obliged to limit himself to those criteria in the first instance. 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.

15Under 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.

VI. ANALYSIS

Issue a) Did Mr. Mirza fail to maintain continuous errors and omissions coverage contrary to subsection 392.8(1) of the Act and section 13 of Regulation 347/04?

16Under issue (a) the answer is yes. I have found that Mr. Mirza failed to maintain continuous E&O insurance coverage during the period August 14, 2014 to December 19, 2014 while licensed as a life insurance and accident and sickness insurance agent, and did thereby fail to comply with subsection 392.8(1) of the Act and section 13 of Regulation 347/04 made under the Act.

Issue b): If so, is the imposition of the proposed administrative monetary penalty appropriate under section 441.3 of the Act and to serve the purposes of subsection 441.2(1) of the Act?

17Under issue b), I find the answer is yes. Again I follow the reasoning in White² and adopted in later decisions of the Tribunal that:

“In our view, all 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. We accept the submission of the Superintendent that the purpose of the E&O requirement is to ensure funds are available to any member of the public who suffers financial loss due to the negligence or fraudulent activity of an agent. Essentially, E&O insurance is intended to protect the consumer….

The public is entitled in return to assume that the licensed agent has the appropriate E&O insurance. A lack of E&O insurance would erode public confidence in the regulatory system. ...We find the necessity for E&O insurance exists whether or not the agent is engaged in any new business.”

18An agent must comply with the requirement or surrender his or her licence. The E&O requirement is not new; it has existed for over 20 years. Both options were available to the Applicant throughout the relevant timeframe. There is no evidence that he was incapable of obtaining coverage or surrendering his licence. I have already found that his medical evidence falls short of finding him incapable of dealing with the renewal. It would appear that although he indicates disability since 2010, he remained licensed and insured until 2014. He seems to have relied on an automatic renewal system with his sponsoring company without ensuring that he had sufficient funds to pay the premium. Nor did he offer any evidence that he tried to confirm the renewal in August 2014. Instead he did nothing until he was advised that he lacked coverage.

19The Tribunal has consistently recognized the general deterrence effect of administrative penalties, including those imposed for non-compliance with the E&O requirement. In my opinion, a penalty for non-compliance will have the potential for deterring other life agents from contravening the requirement. It also prevents agents from deriving an economic benefit from contravention, namely the savings resulting from their failure to pay insurance premiums.

20Consequently I find that both conditions under section 441.2(1) apply to this case, and that it is appropriate that the Applicant be subject to an administrative monetary penalty.

21In determining the amount of AMP, I find as follows:

a. The degree to which the contravention or failure was intentional, reckless or negligent. Mr. Mirza was clearly aware of the E&O requirement while licensed and took no steps until December 2014 to secure coverage as a result of a request by FSCO to provide proof of coverage. The duty to obtain continuous E&O coverage is the agent’s under the Act. Mr. Mirza apparently stopped contact with his sponsoring agent of his own volition. It was his responsibility to ensure that his coverage was renewed and sufficient funds existed to pay the premium or to make his own arrangements to secure coverage. 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 Mr. Mirza’s failure to secure coverage was both reckless and negligent in this instance.

Further, I reject the Applicant’s contention that he should be forgiven for health reasons. No such right exists under the Act. I have already found as a fact that his health issues did not appear to preclude his ability to obtain E&O coverage in 2014. His claims of disability since 2010 did not preclude earlier renewals in 2010-2014 while he remained licensed.

b. The extent of the harm or potential harm to others resulting from the contravention or failure. While I have no evidence that Mr. Mirza was engaged in soliciting new business or that clients were harmed, I find that there was potential harm to clients as he 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 Mr. Mirza took no action to obtain coverage during the period August 14, 2014 to December 19, 2014, until requested by FSCO to provide proof of coverage. Mr. Mirza also took no action to surrender his licence.

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. Mr. Mirza derived an economic benefit of not having to pay E&O premiums during the disputed period. I note his actual annual renewal premium in 2014 of $523.80, which I find produces a direct economic benefit in the order of roughly $175.00.

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. I am not aware of any other contraventions or failures to comply with the Act or with other financial services legislation in Ontario by the Applicant.

22While no formulaic response to the amount of penalty is fixed, I do find it appropriate that the penalty also reflect a deterrent element beyond any saved premium or other economic benefits such as commission income. As noted in previous 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. Consequently I see no reason to alter the amount of AMP proposed in the Superintendent’s NOP of $1,250.00.

VII. ORDER

23The Tribunal orders the Superintendent to carry out his proposal against Shahid Ahmed Mirza as set out in the NOP dated June 15, 2015 to impose an AMP in the amount of $1,250.00.

Dated at Toronto, this 24th day of March, 2016.

“Florence A. Holden” Florence A. Holden

Footnotes

White v. Ontario (Superintendent Financial Services), 2014 ONFST 9, paras 8-19.
Ibid, para 22 and 23.