So far, Quebec courts have flip-flopped three times on the issue, and now Canada’s highest court has just heard the complex case and will decide the matter at a future date.
In the meantime, it is unknown whether or not Sovereign General must pay $560,000 in fines in connection with an investigation conducted by the Autorité des marchés financiers (AMF).
The AMF contends – and The Sovereign disputes – that Winnipeg-based brokerage Flanders Insurance Management and Administrative Services Ltd. required a Quebec license to sell its floor plan insurance (for selling recreational vehices like ATVs) under a master policy to 56 business subscribers in Quebec.
GE Commercial Distribution Finance, based in Toronto, financed the inventory of recreational vehicles on merchants’ premises. GE notified its clients in 2004 that it had opted for a new master policy from Sovereign through Flanders. At GE’s invitation, 56 Quebec merchants subscribed to the policy.
A rival of Flanders then filed complaints against Flanders and GE with the AMF, alleging that Flanders was acting as an insurance broker in Quebec without holding a licence.
In a letter to the AMF, The Sovereign said it had a legal opinion that Flanders did not need a Quebec license to sell the product.
The AMF did not respond to the insurer’s letter or otherwise state its position to the insurer. (It later said in court that to do so would have jeopardized its own investigation.) Instead, the AMF simply brought forth 56 charges against the company, assessing fines of $1,000 per Quebec subscriber.
Quebec law states: “Every insurer that helps or, by encouragement, advice or consent or by an authorization or order, induces a firm . . . to contravene any provision” of the Act respecting the distribution of financial products and services (ADFPS) is guilty of an offence.
Did The Sovereign “help” or “encourage” Flanders to sell the insurance product into Quebec with holding a license in Quebec?
The AMF alleged that Flanders violated the law by selling an insurance product into Quebec without holding a license. It was a strict liability issue, according to the regulator, and so the company’s intent did not matter. Did the company stop the brokerage from selling the product into Quebec or not?
The Sovereign countered that its letter to the regulator, which outlined the company’s understanding of the law, shows that it did not “help” or “encourage” Flanders to violate the law. When the AMF did not respond to the letter or state its position to the company, The Sovereign said it was left with the honestly held belief that it was in compliance with the law.
A complicated dispute between an insurance company and a provincial regulator over whether a brokerage needed to hold a Quebec license to sell a new master policy to Quebec subscribers has made its way to Canada’s top court.
