Reid v. Ontario (Superintendent Financial Services), 2018 ONFST 8

Citation: Reid v. Ontario (Superintendent Financial Services), 2018 ONFST 8 Decision No. I0755-2017-1 Date: 2018/04/26

IN THE MATTER OF the Insurance Act, R.S.O. 1990, c. I.8 (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 August 21, 2017 against Jermaine (Jay) Reid 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.

and

BEFORE:

Craig Brown Chair of the Panel and Member of the Tribunal

Ian McSweeney Member of the Panel and Chair of the Tribunal

Mohammad Faisal Siddiqi Member of the Panel and Member of the Tribunal

For the Applicant – Jermaine Reid, Self-represented

For the Superintendent of Financial Services – Michael Scott

DATE HEARD: April 19, 2018

REASONS FOR DECISION

I. INTRODUCTION

1At all material times, the Applicant in this matter, Jermaine Reid, was licensed as a life insurance and accident and sickness insurance agent under the Insurance Act, R.S.O. 1990, c.I.8. On August 21, 2017, a delegate of the Superintendent of Financial Services (“Superintendent”) issued a Notice of Proposal (“NOP”) in which he proposed to impose a general administrative monetary penalty (“general AMP”) of $1,300 on Mr. Reid. In the NOP, it is alleged that Mr. Reid failed to maintain errors and omissions (“E & O”) insurance between September 1, 2016 and April 17, 2017, a period of approximately 7½ months during which he was licensed to sell insurance, but not active in the industry.

2Since the provisions of the Act allowing the Superintendent to impose AMPs came into force on January 1, 2013, the Tribunal has decided numerous cases involving alleged breaches of the E & O requirement. Without exception, these cases have upheld the principle that AMPs are appropriate where licensed agents fail to maintain E & O coverage, even where they are not actively selling insurance. However, in one case, the Tribunal was prepared to reduce the amount of the penalty proposed by the Superintendent in light of what it regarded to be unique circumstances. Mr. Reid is seeking to have the Tribunal recognize the circumstances of his case as justifying a reduction in the amount of the AMP proposed by the Superintendent.

3For the reasons that follow, we conclude that Mr. Reid has contravened the E & O requirement and that a general AMP is appropriate. However, taking into account the relevant criteria and the submissions made by both parties, we are ordering the Superintendent to reduce the amount of the general AMP to $750.

II. ISSUES

4The Pre-hearing Conference Memorandum prepared for this matter identified three issues. However, in the process of negotiating the Agreed Statement of Facts (“ASF”), Mr. Reid conceded that he had failed to maintain E & O insurance for 7½ months as alleged in the NOP. Accordingly, the number of issues for determination by the Tribunal was reduced to two. These are:

(a) Is the imposition of the proposed administrative penalty appropriate under section 441.3 of the Act and will it serve the purposes of subsection 441.2(1) of the Act?

(b) If the answer to (a) is yes, what is the appropriate quantum of penalty taking into consideration the five criteria prescribed by section 4 of Ontario Regulation 408/12?

III. FACTS

5The parties filed the ASF and an Agreed Book of Documents (“ABD”). Mr. Reid gave additional oral evidence under oath and was cross-examined by counsel for the Superintendent. Having reviewed the evidence adduced, the Tribunal makes the following findings of fact:

Mr. Reid was licensed as a life and accident and sickness insurance agent under the Act with licence number #08105938 and was first issued a licence on December 5, 2008.
Mr. Reid’s life insurance agent licence was most recently renewed on August 20, 2016 and was scheduled to expire on August 19, 2018.
On or about September 1, 2017, Mr. Reid’s employment with Sun Life Financial Group (“Sun Life”) came to an end. While with Sun Life, Mr. Reid’s E & O coverage was arranged and paid for by Sun Life. When he left Sun Life, Mr. Reid ceased to be covered and he made no arrangements for obtaining E & O coverage on his own. Mr. Reid did not work in the insurance industry, neither selling insurance nor advising clients, from September 1, 2016 until April 17, 2017. He was not aware that he was able to engage in insurance business without a sponsor and indeed, for the reasons described below in subparagraph 4, did not think his licence was active. On April 17, 2017, he submitted an application to the Financial Services Commission of Ontario to surrender his life insurance agent licence.
In 2014 the Ontario Legislature repealed section 393(6) of the Act. That section had provided that, where an agency with an insurer is terminated and notice of that is given by the insurer to the Superintendent, the agent’s licence is automatically suspended. Mr. Reid’s evidence was that when he left Sun Life, he wrongly assumed that this section was still in effect and that his licence was suspended along with the obligation to maintain E & O insurance. In Mr. Reid’s experience, that had been the case when a previous agency arrangement with another company had come to an end prior to 2014.
While at Sun Life, Mr. Reid relied on the Compliance department to inform him about changes to applicable statutes or regulations that might affect him. He received no notice of the repeal of section 393(6). On leaving Sun Life, at his exit interview, no mention was made of the fact that he would need to maintain his own E & O insurance.

IV. STATUTORY FRAMEWORK

6 Section 441.3(1) of the Act provides that the Superintendent, if satisfied that a person has contravened the Act or regulation made under the Act, may impose an AMP on that person.

7 Ontario Regulation 347/04, section 13 provides that a life insurance agent shall maintain E & O 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.

8 Section 441.2(1) of the Act provides that an AMP may be imposed under section 441.3: (1) to promote compliance with the requirements established under the Act; and/or (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 this Act.

9 Section 3(1) of Ontario Regulation 408/12 (authorised by section 441.5(1) of the Act) provides that the maximum AMP for an individual for a contravention of section 13 of Ontario Regulation 347/04 is $50,000.

10 Section 4(2) of Ontario Regulation 408/12 provides that, in determining the amount of an AMP, the Superintendent shall consider only five criteria: (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 or entity tried to mitigate any loss or take other remedial action; (4) 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; and (5) any other contraventions or failures to comply with a requirement established under the Act or with any other financial service legislation of Ontario or other jurisdiction during the preceding five years by the person or entity.

V. ANALYSIS

A. Is the Imposition of the Proposed AMP under Section 441.3 of the Act Appropriate and Will it Serve the Purposes of Subsection 441.2(1) of the Act?

11 Subsection 441.2(1) of the Act provides that an AMP may be imposed for either of two purposes:

To promote compliance with the requirements established under the Act; and/or
To prevent a person from deriving any economic benefit as a result of the contravention or failure to comply.

12In Beeksma v. Ontario (Superintendent Financial Services) 2016 ONFST 3, the Panel, after reviewing numerous decisions of the Tribunal involving contraventions of the E & O requirement, held that it is only in the rarest of circumstances that such a contravention would not attract an AMP. In that case the Applicant ceased working in the insurance industry without surrendering his licence. It was held that the fact that he did not engage in insurance business while his licence was active did not excuse the failure to maintain E & O coverage. At paragraph 24 of the decision, the Panel wrote: “Simply put, an agent to whom section 13 applies must either comply with the E & O requirement or reach an agreement with the Superintendent in order to surrender his or her licence.”

13Beeksma and the cases relied on in that decision all hold that the imposition of an AMP in cases of this type serves an important general deterrence function signalling to life insurance agents that maintenance of E & O insurance is a vital component of the regulatory framework intended to protect consumers. In other words, imposition of an AMP in such cases promotes compliance. The cases are also consistent in holding that the requirement to maintain E & O insurance coverage applies to a licensed agent whether or not the agent is actively engaged in insurance business so long as he or she holds an active licence. In Sy v. Ontario (Superintendent Financial Services 2014 ONFST 14 (at paragraph 17) the Tribunal explained that this is because the regulator cannot, as a practical matter, determine on a day to day basis, whether an agent is working or not.

14As mentioned, it has been held that an AMP is payable in these cases except in rare circumstances. In this case there is a unique element (in terms of cases dealing with E & O insurance) in that Mr. Reid did not know that the law relating to automatic suspension of licences upon termination of a sponsorship arrangement with an insurer had changed. On leaving Sun Life, he believed that his licence was suspended and that therefore his obligation to maintain E & O insurance was suspended as well. While we do not doubt Mr. Reid’s honesty in this regard, we note that an agent has an obligation to be aware of the legal framework within which he or she operates. It is for good reason that everyone is deemed to know the law. The maxim, ignorance of the law is no excuse, applies here. It would be too easy for a person dishonestly flouting the regulations to argue that he or she did not know about them. In addition, licenced individuals are responsible to inform themselves of compliance requirements as part of their licence conditions. Ignorance of such conditions cannot excuse non-compliance. Accordingly, we do not consider Mr. Reid’s ignorance of the Act changes to be a circumstance justifying a departure from the firmly established principle that failure to maintain E & O insurance by a person holding a life insurance licence warrants the imposition of an AMP.

15It has also been held consistently that non-participation in insurance business does not mean that there has been no economic benefit from failure to comply with the E & O requirement. At the least, failure to maintain E & O insurance represents a saving in insurance premiums. Therefore, however modest, there was an economic benefit achieved by the contravention in this case.

16Accordingly, we find that the imposition of an AMP is appropriate in this case in accordance with section 441.2(1) of the Act.

B. What is the Appropriate Amount of Penalty Taking into Consideration the Five Criteria Prescribed by Section 4 of Ontario Regulation 408/12?

The Degree to which the Contravention or Failure was Intentional, Reckless or Negligent

17There is no suggestion that Mr. Reid intentionally disobeyed the regulation regarding E & O insurance. We accept (indeed this was not contested by counsel for the Superintendent) that he honestly believed that his licence was suspended and that therefore his obligation to carry E & O insurance was also. The question then, is whether his ignorance of the change in the law was the result of recklessness or negligence on his part.

18We do not consider that Mr. Reid was reckless. There is no evidence before us that he personally received information from the regulator or his sponsoring insurer about changes to the Act or the regulations, relating to E & O insurance, which he ignored or forgot. Sun Life arranged for his E & O while he worked for them and he relied on their Compliance department to inform him about law changes that might affect him. When he left Sun Life, no mention was made in his exit interview, either about E & O insurance generally, or about his obligation to procure his own going forward. His reliance in this regard was not reckless. At the most, his failure to know about his continuing obligation with regard to E & O insurance amounted to negligence.

19While, as discussed above, Mr. Reid is deemed to know the law and in consequence cannot avoid an AMP entirely, in some circumstances ignorance of the law may be a relevant factor in determining degree of wrongdoing for purposes of measuring the quantum of the AMP.

The Extent of the Harm or Potential Harm to others Resulting from the Contravention

20There is no evidence of any actual harm arising from Mr. Reid’s failure to have E & O insurance for 7½ months.

21Counsel for the Superintendent argued that there was potential harm in that Mr. Reid could have done business especially if a sudden need for income arose. Although there was no evidence before the Tribunal to this effect, it was asserted that, despite not having a sponsor-insurer, Mr. Reid could have sold insurance through a corporate agency. Under cross-examination, Mr. Reid stated that he did not know that he had that opportunity. We found Mr. Reid to be a credible witness and accept that he did not contemplate working in the life insurance business during the period in question. While there was a theoretical possibility of his doing insurance business – and the remoter possibility that he would have incurred liability to a client – in fact the potential for harm was, in this case, extremely low.

22In Sy v. Ontario (Superintendent Financial Services) 2014 ONFST 14, at paragraph 17, the Tribunal recognized that, although abstaining from doing insurance business has no bearing on whether there has been a contravention of the E & O requirement, it is relevant in determining the amount of penalty.

The Extent to which Mr. Reid Tried to Mitigate any Loss or to Take other Remedial Action

23Mr. Reid took no positive steps by way of mitigation. This is not surprising given that he believed he was not licensed during the period in question and therefore assumed no one was at risk. Indeed, the fact that he abstained entirely from working in the life insurance business can be viewed as a form of mitigation, if not a conscious one.

The Extent to which Mr. Reid Derived or Reasonably Might have Expected to Derive, Directly or Indirectly, any Economic Benefit from the Contravention

24As discussed above, Mr. Reid derived some economic benefit in the form of savings from not paying E & O insurance premiums. Based on the average E & O premium as summarized in paragraph 51 of the Submissions of the Superintendent of Financial Services, this saving would have amounted to something less than $600.

Any other Contraventions or Failures to Comply with a Requirement Established under the Act or with any Other Financial Service Legislation in Ontario or any Jurisdiction during the Preceding Five Years

25There is no evidence that Mr. Reid contravened any relevant requirement during the preceding five years.

Jurisprudence

26Counsel for the Superintendent referred us to numerous cases in which the Tribunal had accepted proposals as to the amounts of AMPs in E & O insurance cases. The amounts proposed, and accepted by the Tribunal, ranged from $1,300 to $2,500. The amounts bore only a loose correlation to the amount of time the applicant had been without E & O insurance while licensed, but a stronger relationship to whether the contravention was intentional, reckless or negligent.

27In Beeksma, cited above, the Tribunal reduced the proposed AMP from $1,800 to $1,000. Although the period without E & O insurance was in excess of 10 months, the Tribunal accepted that the Applicant, having left the insurance business, relied on the fact that his sponsoring insurer had notified the regulator of the cancellation of his sponsorship in assuming no formal steps were required to surrender his licence. In consequence, the Tribunal found that “…the evidence presented by the Superintendent in order to meet his burden of proof does not support a finding that Mr. Beeksma’s contravention was either intentional or reckless. In the contrary, viewed in the worst possible light, the facts simply establish negligence on his part.”

Conclusion as to Amount of the AMP

28Based on our findings and analysis of the jurisprudence, we conclude that a general AMP of $750 would be appropriate to the circumstances of this case and substitute our decision for the penalty imposed by the Superintendent’s delegate.

VI. ORDER

29The Tribunal orders the Superintendent to impose an administrative monetary penalty in the amount of $750 against the Applicant, Mr. Reid.

Dated at Toronto, this 26th day of April, 2018.

“Craig Brown” Craig Brown

“Ian McSweeney” Ian McSweeney

“Mohammad Faisal Siddiqi” Mohammad Faisal Siddiqi