Editor’s Note: Corrigendum released May 29, 2018. Original Reasons for Decision has been corrected, with text of corrigendum appended.

FINANCIAL SERVICES TRIBUNAL

Citation: Khan v. Ontario (Superintendent Financial Services), 2018 ONFST 3 Decision No. I0744-2017-1 Date: 2018/02/12

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 28, 2017, against Muhammad Sajjad Khan 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:

MUHAMMAD SAJJAD KHAN

APPLICANT

and

SUPERINTENDENT OF FINANCIAL SERVICES

RESPONDENT

BEFORE:

Audrey Mak Chair of the Panel and Member of the Tribunal

WRITTEN SUBMISSIONS:

For the Applicant – Muhammad Sajjad Khan

For the Superintendent of Financial Services – Michael Spagnolo, Counsel

REASONS FOR DECISION

I. INTRODUCTION

1This matter comes before the Tribunal as a result of a Request for Hearing filed by Muhammad Sajjad Khan (the “Applicant”) in response to a Notice of Proposal (“NOP”) issued by the Superintendent (dated June 28, 2017) under sections 441.1, 441.2 and 441.3 of the Act to impose an administrative monetary penalty (“AMP”) in the amount of $1,700 on the Applicant, for his 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 January 1, 2016 to April 12, 2017.

2At a pre-hearing conference held on November 14, 2017, after filing an Agreed Statement of Facts (“ASF”) and Agreed Book of Documents (“ABD”) with the Tribunal on November 3 2017, the parties agreed to a written hearing in lieu of an oral hearing, to be held before a single person panel.

II. DISPOSITION

3The Tribunal orders the Superintendent to carry out his proposal to impose an AMP of $1,700 as set out in the NOP for the reasons set out below.

III. ISSUES

4The Pre-Hearing Conference Memorandum dated October 12, 2017 identifies the following issues for determination by the Tribunal:

(a) Did the Applicant fail to maintain E&O insurance coverage from January 1, 2016 until April 12, 2017, while he 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 taking into consideration the five criteria prescribed by section 4 of Ontario Regulation 408/12 (the “AMP Regulation”)?

IV. FACTS

5I accept the following facts as agreed to by the parties in the filed ASF and ABD:

a. The Applicant was the holder of a life insurance and accident and sickness insurance agent licence (license #10114677).

b. The Applicant’s licence was first issued on June 17, 2010.

c. On March 17, 2017, the Applicant submitted an Application for Surrender of an Insurance Agent Licence (“Surrender Application”) to the Financial Services Commission of Ontario (“FSCO”) for review.

d. In his Surrender Application, the Applicant acknowledged that his E&O coverage had expired on January 1, 2016.

e. On December 2, 2015, a message from FSCO alerted the Applicant that his E&O coverage would expire 30 days from that date.

f. On January 1, 2016, a message from FSCO informed the Applicant that his E&O coverage had expired.

g. On February 1, 2016, FSCO emailed the Applicant a final reminder that his E&O coverage had expired.

h. The Applicant ceased conducting business as a life insurance agent on September 1, 2015.

i. The Applicant had an active life insurance licence without maintaining valid E&O coverage from January 1, 2016 to April 12, 2017.

V. STATUTORY FRAMEWORK

6The statutory framework has been set out in a number of recent cases decided by the Tribunal and need not be repeated in detail here. In particular, an in-depth summary of the statutory framework is set out in White¹ which I adopt.

7It is sufficient for the purposes of this hearing to note that Section 13 of Regulation 347/04 requires an insurance agent to maintain insurance in a form approved by the Superintendent in an amount of at least $1,000,000. There is no exception for insurance agents who are not working or who do not earn any income from the insurance business. It is the individual agent’s duty to ensure that E&O coverage is in place at all times while licensed.²

8According 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.

9Section 441.2(1) of the Act states that a general AMP may be imposed under sections 441.3 or 441.4 to promote compliance with the requirements of the Act and/or 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.

10Therefore, provided the evidence establishes that the Applicant has breached the E&O requirement, and provided a monetary penalty would promote one of the objectives listed in section 441.2(1) of the Act, a general AMP would be an appropriate disciplinary measure.

11The Superintendent is authorized pursuant to subsection 3(2) of the AMP Regulation and Schedule 2, item 26 to impose an AMP in the amount of up to $50,000 for an individual who has failed to comply with the E&O requirement.

12Subsection 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 (i.e., up to $50,000).

13Further, when determining the amount of the AMP to be imposed, subsection 4(2) of the AMP Regulation states that the Superintendent (and now the Tribunal, given the Applicant’s request for a hearing) shall consider only the five criteria listed in that regulation. These criteria are as follows:

1. The degree to which the contravention or failure was intentional, reckless or negligent.

2. The extent of the harm or potential harm to others resulting from the contravention or failure.

3. The extent to which the person tried to mitigate any loss or to take other remedial action.

4. The extent to which the person derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.

5. Any other contraventions of or failures to comply with a requirement established under the Act or with any other financial services legislation of Ontario or of any jurisdiction during the preceding five years by the person.

14This Tribunal may order the Superintendent to carry out the proposal for an AMP with or without changes or substitute its decision for that of the Superintendent (section 441.3(6) of the Act).

VI. ANALYSIS

Issue (a): Did the Applicant fail to maintain E&O insurance coverage from January 1, 2016 until April 12, 2017, while he was licensed as an insurance agent under the Act, as required under section 13 of Ontario Regulation 347/04?

15As noted above, it is an agreed fact that the Applicant did not have E&O coverage from January 1, 2016 to April 12, 2017. During that time period, the Applicant held a licence as a life insurance and accident and sickness insurance agent.

The answer to issue (a) is yes.

Issue (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?

16The imposition of an AMP is appropriate if it would promote compliance with the requirements established under the Act and/or prevent the Applicant from deriving any economic benefit as a result of his non-compliance with the Act.

17As reflected in the long line of cases decided by the Tribunal on this issue (which were included in the Book of Authorities provided to the Tribunal and the Applicant by the Superintendent), the Tribunal has consistently 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 Act.³ As stated in Beeksma, “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.”⁴ In that case, the Tribunal went on to say that while there may be special circumstances where it would be inappropriate to impose a monetary penalty on a life insurance agent who has failed to maintain liability insurance, the Tribunal would expect those circumstances to be rare and that “lack of knowledge is not a valid excuse”.⁵

18The Applicant has requested that no penalty be imposed on him. However, no evidence was submitted as to any special circumstances in which it would be inappropriate in this case to impose an AMP. In his Request for Hearing, the Applicant stated that he made an unintentional mistake and it was due to his lack of awareness of the matter and the circumstances he was facing at the time. He is also submitted that “due to lack of guidance” from his former employer, he was under the impression that his life insurance licence would lapse at the renewal and as long as he was not selling life insurance, he did not need to worry about E&O coverage. Since lack of knowledge is not a valid excuse for not imposing an AMP, I see no reason why an AMP would be inappropriate in this case.

19Furthermore, although the Applicant submitted that “no business was conducted” during the period in which he lacked E&O coverage, and there was no monetary gain nor was any third party put under risk, because the Applicant did not pay E&O premiums for the time period in question, he did derive an economic benefit from his non-compliance.

20The answer to issue (b) is yes. I find that both conditions of subsection 441.2(1) apply to this case and that the Applicant should be subject to an AMP. As stated in previous Tribunal decisions, a penalty is appropriate for non-compliance of the E&O requirement even in cases of first offences and even if the agent is not working.⁶

Issue (c): If the answer to issue (b) is yes, what is the appropriate quantum of penalty taking into consideration the five criteria prescribed by section 4 of the AMP Regulation?

21In determining the amount of the AMP, the Tribunal must take into account only the five criteria listed in subsection 4(2) of the AMP Regulation. Ability to pay a penalty is not one of the listed criteria and therefore is not a relevant factor in determining the amount of an AMP.⁷ I find as follows:

1. The degree to which the contravention or failure was intentional, reckless or negligent. The duty to obtain continuous E&O coverage is the agent’s under the Act. There is no provision in the Act or regulations allowing an insurance agent to suspend his or her E&O coverage while licensed⁸. FSCO notified the Applicant by email three times (both before and after January 1, 2016) to warn the Applicant regarding the expiry of his E&O coverage on January 1, 2016. Despite the three FSCO warnings, the Applicant took no steps to renew his E&O coverage or to surrender his license earlier than March 17, 2017. In his Surrender Application, the Applicant acknowledged that the expiry date of his E&O coverage was January 1, 2016, so it is clear he understood that his E&O coverage had expired. For these reasons, I find that the Applicant’s conduct was reckless and negligent in this regard.

2. The extent of the harm or potential harm to others resulting from the contravention or failure. There is no evidence to suggest that the Applicant’s contravention caused actual harm to anyone. However, there was potential harm to clients as the Applicant remained licensed for over 15 months while uninsured and neither FSCO nor the Superintendent had any practical way of supervising his activities during this period⁹.

3. The extent to which the person tried to mitigate any loss or to take other remedial action. Despite the three warnings from FSCO, the Applicant took no action to obtain E&O coverage after his coverage had expired on January 1, 2016. He also took no action to surrender his licence until March 17, 2017 even though his E&O coverage had expired on January 1, 2016.

4. The extent to which the person derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure. There is no evidence to suggest that the Applicant engaged in the life insurance business during the period in which he lacked E&O coverage. However, the Applicant did derive an economic benefit from the contravention as he did not pay premiums for E&O coverage for over 15 months when he was required to do so.

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

22The AMP proposed in this case is $1,700. That amount is not significantly different from the amounts accepted by this Tribunal in other similar cases in which an insurance agent failed to maintain E&O coverage while licensed:

• Sy¹⁰ - $1,500, no E&O coverage for 5 ½ months
• Iqbal¹¹ - $1,500, no E&O coverage for 6 ¾ months
• Barot¹² - $1,500, no E&O coverage for 6 months
• Lin¹³ - $1,600, no E&O coverage for 9 months
• Hashim¹⁴ - $1,500, no E&O coverage for almost 7 months
• Dennis¹⁵ - $1,700, no E&O coverage for approximately 14 months
• Manigbas¹⁶ - $2,000, no E&O coverage for approximately 14 months
• Srivastava¹⁷ - $1,650, no E&O coverage for just over 12 months.

23Having considered the specific facts of the Applicant’s case and based on all of the foregoing, the Tribunal finds that an AMP in the amount of $1,700 as proposed by the Superintendent is appropriate.

VII. ORDER

24The Tribunal orders the Superintendent to carry out his proposal against Muhammad Sajjad Khan as set out in the NOP dated June 28, 2017 to impose an AMP of $1,700.

Dated at Toronto, this 12th day of February, 2018.

“Audrey Mak” Audrey Mak

Corrigendum

25In the Reasons for Decision dated February 12, 2018, there is a typographical error on page 6, in footnotes 10 and 11.

26Pursuant to Rule 12.02 of the Rules of Practice and Procedure for Proceedings Before the Financial Services Tribunal, the Reasons have been corrected as follows: footnote 10 made reference to note 7. This has been corrected to make reference to note 8. Additionally, footnote 11 made reference to note 8. This has been corrected to make reference to note 9.

Dated May 29, 2018

“Audrey Mak” Audrey Mak

Footnotes

1. 1White v. Ontario (Superintendent Financial Services) 2014 ONFST 9, paras. 8-19.
2. 2Anyanwu v. Ontario (Superintendent Financial Services), 2015 ONFST 24, para 8.
3. 3Lam v. Ontario (Superintendent Financial Services), 2016 ONFST 23 at para. 11.
4. 4Beeksma v. Ontario (Superintendent Financial Services), 2016 ONFST 3 at para. 24.
5. 5Ibid.
6. 6Manigbas v. Ontario (Superintendent Financial Services), 2017 ONFST 8 at para. 27.
7. 7Lin v. Ontario (Superintendent Financial Services), 2015 ONFST 17 at para. 16.
8. 8White, supra note 1 at para. 23; Sy v. Ontario (Superintendent Financial Services), 2014 ONFST 14 at para. 17.
9. 9Iqbal v. Ontario (Superintendent Financial Services), 2015 ONFST 6 at para. 16.
10. 10Sy, supra note 8 at para. 22.
11. 11Iqbal, supra note 9 at para. 18.
12. 12Barot v. Ontario (Superintendent of Financial Services), 2015 ONFST 14 at para. 25
13. 13Lin, supra note 7 at para. 18.
14. 14Hashim v. Ontario (Superintendent Financial Services), 2015 ONFST 40 at para.28.
15. 15Dennis v. Ontario (Superintendent Financial Services), 2016 ONFST 18 at para.27.
16. 16Manigbas, supra note 6 at para 28.
17. 17Srivastava v. Ontario (Superintendent Financial Services), 2017 ONFST 11 at para. 33.