Effective January 1, 2013, administrative monetary penalties ("AMPs") were introduced to Ontario's insurance industry as a result of changes to the Insurance Act (Ontario), the Automobile Insurance Rate Stabilization Act, 2003 (Ontario) and the Compulsory Automobile Insurance Act (Ontario). In accordance with the Ontario government's 2012 Ontario Budget, AMPs were implemented in order to help the Financial Services Commission of Ontario ("FSCO") address contraventions of the law more efficiently and promote compliance. 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 AMPs in 2005 by promulgating the Administrative Monetary Penalties (OSFI) 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.
what is an AMP and when can it be imposed?
An AMP is a financial penalty imposed by a regulator, like 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 AMP 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 license. AMPs may be imposed for contraventions of or failure to comply with statutory provisions, as well as for breaches of orders, undertakings and license conditions. It is important to note that AMPs will also specifically apply to contraventions of the Unfair or Deceptive Acts or Practises 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 imposition of an AMP 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.
kinds of AMPs and maximum amounts
There are two kinds of AMPs: "general" AMPs and "summary" AMPs. The statutes and their accompanying regulations outline which kind of AMP 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 AMPs and different maximum penalties apply depending upon the Schedule on which the statutory provision is listed.
General AMPs are more costly than summary AMPs. The maximum amounts for general AMPs range between $50,000 to $100,000 for an individual and $100,000 to $200,000 for a person who is not an individual.
Examples of general AMPs 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 Practises Regulations.
Examples of general AMPs 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 AMP the Superintendent of Financial Services is allowed to consider only the following:
- 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 during the preceding five years by the person.
There are similarly two kinds of summary AMPs prescribed. Schedule 3 to Ontario Regulation 408/12 Administrative Penalties lists the provisions of the Insurance Act (Ontario) that are subject to summary AMPs and prescribes the amount of the corresponding penalty, which falls in the range of $1,000 to $3,000. Schedule 4 to that regulation lists the provisions that may be subject to a daily penalty of $250 per day. All summary AMPs are subject to a maximum of $25,000. Examples of summary AMPs include:
- failure by an insurer to file with the Superintendent an address for service;
- failure by an insurer to furnish a copy, upon 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.
procedure for imposing AMPs
An AMP will be imposed differently depending on whether it is a summary or general AMP:1
- Imposition of summary AMPs:
FSCO will notify the affected party that an AMP may be ordered. The affected party then has 10 days to make submissions for FSCO to consider when deciding whether or not an AMP will be issued. If FSCO decides issuance of the AMP is warranted, the affected party will receive an AMP Order, and will then have 15 days to appeal the AMP to the Financial Services Tribunal.
- Imposition of general AMPs:
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 AMP. If the tribunal upholds the proposal, an AMP order is issued.
For both kinds of AMPs, 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.
For more information on the implementation of AMPs in the Ontario insurance sector, see the Financial Services Commission of Ontario website.
Co-authored by Devina D'Silva, student at law.