FINANCIAL SERVICES TRIBUNAL

Citation: Manigbas v. Ontario (Superintendent Financial Services), 2017 ONFST 8 Decision No. I0730-2017-1 Date: 2017/07/27

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 against Nimfa Lacorte Manigbas dated March 13, 2017 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 Hearing in accordance with subsection 441.3(5) of the Act;

B E T W E E N:

NIMFA LACORTE MANIGBAS

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 – Nimfa Manigbas

For the Superintendent of Financial Services – Aisha Amode and Michael Spagnolo

REASONS FOR DECISION

I. INTRODUCTION

1This matter comes before me as a result of a Request for Hearing filed by Nimfa Lacorte Manigbas (the “Applicant”) in response to a Notice of Proposal (“NOP”) dated March 13, 2017 to Impose an Administrative Monetary Penalty (“AMP”) in the amount of $2,000 on the Applicant 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 during the period from June 1, 2015 to August 12, 2016.

2In her Request for Hearing dated March 27, 2017, which was received by the Financial Services Tribunal (“Tribunal”) on April 5, 2017, Mrs. Manigbas 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 the Tribunal on June 12, 2017.

3On the agreement of the parties and provided that an agreed statement of facts was filed with the Tribunal, the Chair then agreed to conduct a written hearing. This request was granted under then Rule 21.03 of the Tribunals’ Rules of Practice and Procedure for Proceedings Before the Financial Services Tribunal (“Rules”) on the basis that: the issues were now limited to penalty, material facts were no longer in dispute, the convenience of the parties, the efficiency of the proceeding and the avoidance of further delay.

4The Tribunal may, by order, direct the Superintendent to carry out the proposal, with or without changes, or to substitute its opinion for that of the Superintendent. Having reviewed the evidence of both parties as outlined in a signed Agreed Statement of Facts and Agreed Book of Documents, filed June 12, 2017 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 $2,000 as against the Applicant. The reasons for my decision follow.

II. ISSUES

5The notice of hearing issued by the Tribunal states that the purpose of the hearing is to determine the following issues:

(a) Did Mrs. Manigbas fail to maintain E&O coverage from June 1, 2015 to August 12, 2016 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?

III. The FACTS

6The Tribunal accepts the facts as agreed to by the parties in the filed Agreed Statement of Facts and supported by an Agreed Book of Documents and Mrs. Manigbas’ submissions as follows:

a. Mrs. Manigbas holds a life insurance and accident and sickness insurance agent licence issued by the Superintendent under the Act (licence number #12127102).

b. Mrs. Manigbas was first issued an insurance agent licence on August 13, 2012. Mrs. Manigbas’ licence expired on August 12, 2016, but was renewed effective December 28, 2016.

c. On July 2, 2015, an automated email was sent to Mrs. Manigbas at the email address listed on her application, to notify her that her errors and omissions insurance (“E&O”) policy had expired. A duplicate email was sent on August 3, 2015.

d. On December 13, 2016, Mrs. Manigbas submitted an application to renew her licence.

e. On December 15, 2016, a Licensing and Registration Specialist (“LRS”) of the Financial Services Commission of Ontario (“FSCO”) contacted Mrs. Manigbas via email to advise her that various documents were outstanding in order to complete her application. Amongst other documents, the LRS requested a copy of her E&O certificate for the period between June 1, 2015 and August 12, 2016.

f. On December 22, 2016, the LRS received a letter from Mrs. Manigbas along with supporting documentation. The LRS emailed Mrs. Manigbas again to advise her that while various documents were received, the certificate of insurance for E&O coverage for the period between June 1, 2015, and August 12, 2016, was still outstanding.

g. On December 23, 2016, Mrs. Manigbas responded by email stating: “I have been working full time as building Superintendent since 2013 and in the 2nd quarter of 2015 I wasn’t able to take the weekly meeting/training at my insurance agency because of job conflict. The reason why I stopped selling and also didn’t get eoe [sic] insurance from June 1st 2015 until the lapse of the licence.”

h. In her Request for Hearing, Mrs. Manigbas stated: “then came June 1st 2015, I decided not to get covered by EO with the intention to discontinue selling but not give up my insurance license at once. I was waiting for the right MGA and the right time to continue until it lapsed in Aug 12, 2016.”

i. Mrs. Manigbas failed to renew her E&O coverage and therefore, was without E&O from June 1, 2015 to August 12, 2016 (a period of 14 ½ months), while holding an active insurance agent licence.

7I accept Mrs. Manigbas’ 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.

8I accept the Applicant’s submission that while she was aware of the need for E&O coverage, she was unaware that she would be subject to an administrative penalty for failing to have such coverage. I also find that she took no steps to surrender her licence.

9Consequently, based on these findings of fact, I find that answer to the first issue is yes.

IV. Statutory Framework

10Previous 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 entirely but which I adopt.

11Life 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.

12Subsection 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. I note 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.

This requirement to maintain E&O insurance applies whether or not an agent such as Mrs. Manigbas solicited or conducted life insurance business in the period.

13According 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.

14Section 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:

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

2. 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.

15Ontario Regulation 408/12 (the “AMP regulation”) prescribes the maximum AMPs for various contraventions of the Act or its regulations. A contravention of section 13 of the Agent regulation is listed as item 26 of Schedule 2 of the AMP regulation. Subsection 3(1) of the AMP regulation states that the maximum penalty that may be imposed under section 441.3 of the Act, for a contravention listed in Schedule 2, is $50,000 in the case of an individual.

16Subsection 4(1) of the AMP regulation authorizes the Superintendent to determine the amount of a penalty imposed under section 441.3 of the Act, subject to the limits set out in section 3 of the AMP regulation (up to $50,000). Further, subsection 4(2) of the AMP regulation states that, in determining the amount of the penalty, the Superintendent shall consider only the five criteria listed in the regulation, as discussed below (emphasis ours). 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.

17Under 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. ANALSIS

18Issue (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 whether it will serve the purposes of subsection 441.2(1) of the Act.

19I find the answer to issue (b) 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 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”.

20I accept the Superintendent’s submissions which stated that the purpose of the E&O requirement is to ensure that a fund is available to compensate any member of the public who suffers financial loss due to the negligence or fraudulent activity of an agent. E&O coverage, therefore, is a consumer protection requirement. I agree that the public is entitled to confidently assume that when it entrusts its life insurance needs and business to a licensed agent, the agent has E&O insurance that will be available if needed. Further E&O coverage exists to protect the consumer, and a lack of insurance erodes public confidence in the regulatory system.

21Similar to our findings in Mirza² and Dennis³, an agent must comply with the E&O requirement or surrender his or her licence. There was no evidence that Mrs. Manigbas was incapable of obtaining coverage or surrendering her licence. She did not obtain coverage until she applied to renew her licence in December of 2016.

22I find that the imposition of a penalty in this instance will have the potential for deterring other life agents from contravening the requirement for E&O 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 Mrs. Manigbas while licensed are an indirect economic benefit.

23Mrs. Manigbas requested no penalty or a lesser penalty. No evidence was submitted as to rare or unusual circumstances in which it would be inappropriate to impose a monetary penalty. 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 Mrs. Manigbas 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. Mrs. Manigbas took no steps until she re-entered the insurance industry in December 2016 to secure E&O coverage. The duty to obtain continuous E&O coverage is the agent’s under the Act. Mrs. Manigbas indicated that she was aware of the need for E&O coverage, but she chose not to 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 Mrs. Manigbas’ 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 Mrs. Manigbas 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 Mrs. Manigbas took no action to obtain coverage during the period June 1, 2015 to August 12, 2016, until she resumed her insurance business activities. Mrs. Manigbas also took no action to surrender her licence. nor was she in contact with FSCO about her lack of coverage until contacted by FSCO in December 2016.

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 Mrs. Manigbas did not engage in any insurance business in this uninsured period. However Mrs. Manigbas derived an indirect economic benefit of not having to pay E&O premiums during the disputed period. No direct evidence was proffered as to her likely annual renewal premiums during the period although there is some limited evidence that her 2014-2015 premium and policy fee costs were approximately $625⁴.

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.

26I note for completeness only, that Mrs. Manigbas’ evidence as to her taxable income has no bearing on the penalty. Ability to pay as noted in Lin⁵ has no bearing on the factors to be considered under the Act.

27While no formulaic response to the amount of penalty is fixed, in Barot⁶ 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. As noted in previous Tribunal decisions referred to in the Superintendent’s submissions, 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. Mrs. Manigbas 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 $2,000.00.

VI. ORDER

28The Tribunal orders the Superintendent to carry out his proposal against Nimfa Lacorte Manigbas as set out in the NOP dated March 13, 2017 to impose an AMP in the amount of $2,000.00.

Dated at Toronto, this 27th day of July, 2017.

“Florence A. Holden” Florence A. Holden

Footnotes

1. 1White v. Ontario (Superintendent Financial Services), 2014 ONFST 9, paragraphs 8 – 19.
2. 2Mirza v. Ontario (Superintendent Financial Services) 2016 ONFST 9, paragraph 18.
3. 3Dennis v. Ontario (Superintendent Financial Services) 2016 ONFST 18, paragraph 21.
4. 4Agreed Book of Documents, tab 10(5) ($625)
5. 5Lin v. Ontario (Superintendent Financial Services) 2015 ONFST 17, paragraph 16.
6. 6Barot v. Ontario (Superintendent Financial Services) 2015 ONFST 14, 2015 ONFST14, paragraph 25.