Effective January 1 2013, administrative monetary penalties were introduced to Ontario's insurance industry as a result of changes to the Insurance Act (Ontario), the Automobile Insurance Rate Stabilisation Act 2003 (Ontario) and the Compulsory Automobile Insurance Act (Ontario). In accordance with the Ontario government's 2012 Budget, administrative monetary penalties were implemented in order to help the Financial Services Commission of Ontario (FSCO) address contraventions of the law more efficiently and promote compliance. The FSCO is the government agency responsible for regulating Ontario-licensed insurers, agents (and, to a lesser extent, brokers) and adjusters.
By contrast, the Office of the Superintendent of Financial Institutions, Canada's federal regulator of banks, insurers and loan and trust companies, implemented administrative monetary penalties in 2005 by promulgating the Administrative Monetary Penalties Regulations under the Office of the Superintendent of Financial Institutions Act (Canada). Ontario now has a somewhat similar regime insofar as a process exists to redress situations of non-compliance without the regulator having to pursue an offence under the legislation.
An administrative monetary penalty is a financial penalty imposed by a regulator, such as the FSCO, for contraventions of the law in addition to or in replacement of other penalties. The amendments to the Insurance Act (Ontario) provide that an administrative monetary penalty may be imposed alone or in conjunction with any other regulatory measure provided by the statute, including cease orders in the event of an "unfair or deceptive act or practice", or suspension, revocation or cancellation of a licence. Administrative monetary penalties may be imposed for contraventions of or failure to comply with statutory provisions, as well as for breaches of orders, undertakings and licence conditions. Administrative monetary penalties will also specifically apply to contraventions of the Unfair or Deceptive Acts or Practices Regulations under the Insurance Act (Ontario). These regulations are broadly drafted and apply to a wide-ranging group of persons, including insurers (and their officers and employees), agents, brokers, adjusters and anyone involved in the provision of goods or services to insurance claimants. Examples of such practices that could attract the imposition of an administrative monetary penalty include:
- unfair discrimination in rates charged for insurance;
- false or misleading statements as to the terms, benefits or advantages of any insurance contract;
- any direct or indirect payment, allowance or gift given or offered as an inducement to purchase insurance;
- unreasonable delay in adjustment and settlement of claims;
- improper use of credit information in the underwriting process (for automobile insurance); and
- improper charges for goods or services provided to persons claiming statutory accident benefits.
There are two kinds of administrative monetary penalty: general administrative monetary penalties and summary administrative monetary penalties. The statutes and their accompanying regulations outline which kind of administrative monetary penalty can be imposed for a contravention of or failure to comply with a provision. Schedules 1 and 2 to Ontario Regulation 408/12 Administrative Penalties list the provisions of the Insurance Act (Ontario) that give rise to general administrative monetary penalties. Different maximum penalties apply depending on the schedule on which the statutory provision is listed.
General administrative monetary penalties are more costly than summary administrative monetary penalties. The maximum amounts for general administrative monetary penalties range from C$50,000 to C$100,000 for an individual, and from C$100,000 to C$200,000 for a person that is not an individual.
Examples of general administrative monetary penalties that give rise to the highest maximum penalties include:
- an insurer undertaking insurance in Ontario without a licence;
- an insurer failing to follow the statutory procedure for withdrawal from automobile insurance;
- an insurer declining to issue or terminating automobile insurance other than on a ground filed with the superintendent; and
- an action by a person that constitutes an "unfair or deceptive act or practice" under the Unfair or Deceptive Acts or Practices Regulations.
Examples of general administrative monetary penalties that give rise to the lesser maximum penalties include:
- failure by a life insurer to keep separate and distinct accounts of participating and non-participating business;
- failure by an insurer's directors, officers, employees or representatives to provide records, information or explanations to the insurer's actuary;
- use by an insurer of forms for automobile insurance that have not been approved by the superintendent; and
- failure by any person undertaking professional services for an insurer to report to the insurer, the insurer's auditor or the superintendent breaches of the statute of which such person becomes aware.
In determining the amount of a general administrative monetary penalty, the superintendent of financial services is allowed to consider only:
- the degree to which the contravention or failure was intentional, reckless or negligent;
- the extent of the harm or potential harm to others;
- the extent to which the person tried to mitigate any loss or take other remedial action;
- the extent to which the person derived any economic benefit from the contravention or failure; and
- any other contraventions by the person during the preceding five years.
Similarly, two kinds of summary administrative monetary penalty are prescribed. Schedule 3 to Ontario Regulation 408/12 Administrative Penalties lists the provisions of the Insurance Act (Ontario) that are subject to summary administrative monetary penalties and prescribes the amount of the corresponding penalty, which falls in the range of C$1,000 to C$3,000. Schedule 4 to that regulation lists the provisions that may be subject to a daily penalty of C$250 a day. All summary administrative monetary penalties are subject to a maximum of C$25,000. Examples of summary administrative monetary penalties include:
- failure by an insurer to file with the superintendent an address for service;
- failure by an insurer to furnish a copy, on request, of the application for insurance to an insured or claimant; and
- failure by an insurer to file annual and interim statements with the superintendent.
An administrative monetary penalty will be imposed differently depending on whether it is a summary or general administrative monetary penalty.(1)
Summary administrative monetary penalties
The FSCO will notify the affected party that an administrative monetary penalty may be ordered. The affected party then has 10 days to make submissions for the FSCO to consider when deciding whether an administrative monetary penalty will be issued. If the FSCO decides issuance of the administrative monetary penalty is warranted, the affected party will receive an administrative monetary penalty order and will then have 15 days to appeal the administrative monetary penalty to the Financial Services Tribunal.
General administrative monetary penalties
The FSCO will first issue a notice of proposal to the affected party. The affected party then has 15 days to request a Financial Services Tribunal hearing regarding the administrative monetary penalty. If the tribunal upholds the proposal, an administrative monetary penalty order is issued.
For both kinds of administrative monetary penalty, the penalty must be paid no later than 30 days after receiving notice of the order to impose the penalty, unless a longer time period is specified in the order.(2)
For further information on this topic please contact Carol Lyons or Devina D'Silva? at McMillan LLP by telephone (+1 416 865 7000), fax (+1 416 865 7048) or email (email@example.com). The McMillan LLP website can be accessed at www.mcmillan.ca.
(1) Financial Services Commission of Ontario, Administrative Monetary Penalties and Ontario Insurance Sector Frequently Asked Questions, available at www.fsco.gov.on.ca.
(2) For more information on the implementation of administrative monetary penalties in the Ontario insurance sector, see the Financial Services Commission of Ontario website at www.fsco.gov.on.ca/en/insurance/Pages/administrative-monetary-penalties.aspx.
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