Insurance Council of British Columbia

IN THE MATTER OF THE FINANCIAL INSTITUTIONS ACT (RSBC 1996, c. 141) (the “Act”)

and the INSURANCE COUNCIL OF BRITISH COLUMBIA (“Council”)

and JAMES McGREGOR (the “Nominee”)

and ON TRACK INSURANCE SERVICES LTD. (“On Track”)

and HAIG & ASSOCIATES INC. (“Haig”)

ORDER Pursuant to section 237 of the Act, Council convened a hearing at the request of the Nominee, On Track and Haig to dispute an intended decision of Council dated August 16, 2018.

The subject of the hearing was set out in a Notice of Hearing, dated March 28, 2019 and amended May 23, 2019.

A Hearing Committee heard the matter on May 28, 2019 and presented a Report of the Hearing Committee to Council at its October 1, 2019 meeting.

Council considered the Report of the Hearing Committee and made the following order pursuant to sections 231, 236 and 241.1 of the Act:

1. On Track is fined $15,000; 2. Haig is fined $15,000;

Order James McGregor, On Track Insurance Services Ltd., and Haig & Associates Inc. LIC-179148C124711R1, LIC-198877C145961R1, and LIC-154103C91028R2 / COM-2016-00141 October 8, 2019 Page 2 of 2

3. The fines to On Track and Haig are joint and several; 4. The Nominee is fined $7,500; 5. On Track, Haig and the Nominee are jointly and severally assessed Council’s investigative costs of $1,500;

6. On Track, Haig and the Nominee are jointly and severally assessed Council’s hearing costs of $7,631.85;

7. A condition is imposed on the Nominee’s general insurance licence that failure to pay the $7,500 fine by January 6, 2020 will result in automatic suspension of his licence and he will not be permitted to complete any annual filing until such time as the fine is paid in full;

8. A condition is imposed on On Track’s and Haig’s general insurance licences that failure to pay their respective $15,000 fines by January 6, 2020 will result in automatic suspension of both their licences and neither will be permitted to complete any annual filing until such time as the fines are paid in full; and

9. A condition is imposed on On Track’s, Haig’s, and the Nominee’s general insurance licences that failure to pay the investigative costs and the hearing costs by January 6, 2020 will result in automatic suspension of all their licences and none will be permitted to complete any annual filing until such time as the investigative costs and hearing costs are paid in full.

This order takes effect on the 8 th day of October, 2019. _________________________________________ Lesley Maddison Chairperson, Insurance Council of British Columbia

INSURANCE COUNCIL OF BRITISH COLUMBIA (“Council”)

REPORT OF THE HEARING COMMITTEE IN THE MATTER OF THE FINANCIAL INSTITUTIONS ACT (R.S.B.C. 1996, c. 141) (the “Act”)

AND JAMES McGREGOR (the “Nominee”)

AND ON TRACK INSURANCE SERVICES LTD. (“On Track”)

AND HAIG & ASSOCIATES INC. (“Haig”)

Date: May 28, 2019 10:00 a.m.

Before: Chamkaur Cheema Chair Tony Hayes Member Jason Baughen Member Location: Suite 2700 – 700 West Georgia Street, Vancouver, BC Present: Thea Hoogstraten Counsel for Council Peter Auvinen Counsel for the Nominee, On Track and Haig James McGregor Nominee Michael D. Shirreff/ Counsel for the Hearing Committee Elizabeth Allan

BACKGROUND AND ISSUES On June 11, 2018, Council made an intended decision, pursuant to sections 231, 236 and 241.1 of the Act, to impose discipline on the Nominee, On Track and Haig (together, the “Licensees”) arising from allegations that they distributed Guaranteed Asset Protection vehicle insurance (“GAP”) to British Columbia consumers through motor vehicle dealerships which were not permitted by Council to engage in GAP business (“Dealerships”). …/2

Report of the Hearing Committee James McGregor, On Track Insurance Services Ltd. and Haig & Associates Inc. Date of Hearing: May 28, 2019 Page 2 of 15

On August 16, 2018, in accordance with section 237 the Act, Council provided the Licensees with written reasons and notice of its intended decision. On August 28, 2018, in accordance with section 237(3) of the Act, the Licensees requested a hearing before Council to dispute the intended decision.

As set out in the Amended Notice of Hearing issued May 23, 2019, the purpose of the Hearing was to determine whether the Licensees:

a) Failed to act in a competent manner and in accordance with the usual practice of the business of insurance and in accordance with Council’s Rules, Code of Conduct and pursuant to section 231(1)(a) of the Act;

b) Engaged entities to conduct unlicensed insurance activities by contracting with Dealerships to promote GAP, assist with the completion and submission of GAP applications to On Track, collect GAP premiums and applicable sales taxes on behalf of On Track and forward to On Track the premium remittance less a fee retained by the Dealerships (“Dealer Marketing Fee”);

c) Permitted Dealerships to determine the GAP premium by allowing them to include an undisclosed Dealer Marketing Fee;

d) Failed to disclose to the consumer the Licensees’ relationship with the Dealerships and that compensation was paid to the Dealerships for the sale of GAP insurance; and

e) Failed to comply with the provisions of the Act (inter alia: sections 75(d), 168, 171(2), 178(1) and the Marketing of Financial Products Regulation).

The hearing was scheduled to take place May 28-30, 2019. As a result of an Agreed Statement of Facts in which the Licensees admitted the alleged breaches, the submissions of legal counsel focused on the issue of penalty and the hearing completed in one day. The Licensees and their counsel participated via video-conference from Toronto.

Council sought the maximum possible fines against each of the three Licensees for their respective breaches. The Licensees’ position was that the maximum possible fines were not warranted on the facts of this case. In conducting GAP business with Dealerships, the Licensees said that they relied on advice received from a third party that those activities were in compliance with this province’s regulations, which they were not.

The Hearing Committee has considered the submissions of both Council and the Licensees. For the reasons set out below, the Hearing Committee is not recommending the maximum possible fine against each of the Licensees as sought by Council. Although this matter raises concerns about the Licensees, there was no evidence that this was a deliberate attempt to circumvent the rules and regulations or defraud the public. Indeed, Council was not alleging this. Further, the Licensees admitted their mistakes and have apologized for it. The Licensees were very contrite

Report of the Hearing Committee James McGregor, On Track Insurance Services Ltd. and Haig & Associates Inc. Date of Hearing: May 28, 2019 Page 3 of 15

during the hearing. The Hearing Committee is of the view that the maximum possible penalty ought to be reserved for misconduct which is intentional, willfully blind, egregious or continually denied and that is simply not the case in this matter. However, the Hearing Committee is of the view that given the Licensees’ experience in the insurance industry, when they decided to do business in British Columbia, they ought to have taken further steps to ensure that they were within this jurisdiction’s regulatory requirements. The Licensees commenced business in British Columbia without even reviewing Council’s Rules and Code of Conduct. In terms of their compliance, the Licensees relied upon the advice of a third party who was not a lawyer and they did not seek advice from Council itself. The Hearing Committee is therefore recommending a fine of $15,000 against each of On Track and Haig, and a fine of $7,500 against the Nominee, as well as Council’s costs of the hearing.

EVIDENCE Exhibits As touched upon above, the hearing time was greatly reduced as a result of the parties reaching an Agreed Statement of Facts on many issues. The following exhibits were entered by Council during the course of the hearing:

Exhibit 1 – Agreed Statement of Facts Exhibit 2 – Book of Documents of Council Exhibit 3 – Book of Documents of the Licensees

Council called one witness, Connel Lewis, an investigator for Council. The Licensees called the Nominee as well as Clayton Leys, the President and sole shareholder of On Track. Their respective evidence is canvassed below.

Agreed Statement of Facts Council took the Hearing Committee through the Agreed Statement of Facts (Exhibit 1). We will not repeat everything here, but some of the material facts were as follows.

The Nominee became licensed in British Columbia in February 2015 and is the nominee for both On Track and Haig, which are companies incorporated pursuant to the laws of Ontario. Haig has held a general insurance license in British Columbia since October 2002 and On Track has held a general insurance license in British Columbia since March 2015. Neither entity has had any previous disciplinary history with Council. Mr. Leys is not licensed with Council.

On October 5, 2012, Council issued Notice ICN 12-006 which granted restricted general insurance licenses to motor vehicle dealerships which permitted only offering insurance products which were reviewed and approved by Council with an average coverage per policy, including riders, of $15,000 or less. It specifically included language as follows:

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There are new disclosure requirements to ensure consumers have a clear understanding of their right to decline any insurance coverage. Dealerships will be required to provide consumers with a disclosure document, separate from any other vehicle sales transaction document provided, that outlines in clear and concise language:

a) That the purchase of the insurance coverage is optional and can be declined by the consumer; and

b) The premium (as set by the underwriting insurer) and, separately, an itemized list of fees charged by the Dealership which includes the amount of each fee and a description.

The Licensees and Mr. Leys were aware that they would have to comply with the applicable laws and regulations in each jurisdiction in which they sold GAP. As such, Mr. Leys reached out to the GAP insurer (the “GAP Insurer”) regarding regulatory compliance in British Columbia. The GAP Insurer’s response included an email from its Underwriting and Governance Manager, Specialty Warranty, Mr. Y, on August 6, 2014 with a subject line of “On Track GAP / BC Approval” and read:

Clayton, We have discussed and confirmed with Legal regarding B.C., and provided that your process flow is identical to the other provinces where you are currently doing business, you have the green light to go ahead immediately.

Just a reminder, don’t forget to us the B.C. specific Wording, Declaration and Application.

Happy sales Regards [Mr. Y] In or about July 2015, On Track began marketing GAP in British Columbia through six Dealerships. In May 2016, Council was notified that On Track was marketing GAP through the Dealerships that were not licensed to engage in GAP sales.

The Dealerships had a retail price sheet for On Track’s GAP that provided the Dealerships with flexibility in determining the premium. Dealerships were permitted at their discretion to adjust their fees by up to $2,000 per policy, which would be retained by the Dealerships (the Dealer Marketing Fee) and which was built into the financing of an insured vehicle. On Track and Haig were aware that Dealerships were determining the total premium through this discretionary

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assessment. At no time were consumers advised that there was a Dealer Marketing Fee which was determined and retained by the Dealership.

According to the records, 169 GAP policies were sold in British Columbia by six Dealerships for a six month period between July 1, 2015 and December 31, 2015 with premiums ranging from $1,200 to $2,500 per policy. The Dealer Marketing Fee incorporated into the premium typically comprised 50-80% of the premium. Total premiums, including Dealer Marketing Fees, collected for the 169 policies were $328,854 of which $221,346 was retained by the Dealerships as Dealer Marketing Fees. The actual product cost was $107,506, which went to On Track.

The Licensees continued to offer GAP between January 1, 2016 through June 2016 when they ceased selling the product after the GAP insurer terminated its contract to offer the coverage. No data for value premiums and product cost was provided to Council for either before or after the July 1, 2015 through December 31, 2015 time period.

Evidence of Connel Lewis Council’s first and only witness was Mr. Lewis, an investigator with Council since January 2012. Mr. Lewis had conduct of the investigation of this matter. He confirmed that Mr. McGregor was the Nominee and the only authorized person to represent Haig and On Track.

Mr. Lewis identified a bulletin that Council issued in October 2001 which he had retrieved from Council’s website in 2016 during the course of his investigation. He confirmed he was not an investigator for Council in 2001 when the bulletin was published. The bulletin contained a heading “Disclosure of Service Fees” which outlined that “when a service fee is charged, it is necessary to disclose, in writing, the amount of such a fee and the fee must be shown separately from the insurance premium”. Mr. Lewis’ evidence was that this bulletin was mailed to licensees in 2001 and was subsequently re-published on Council’s website although he could not say precisely when. He testified it was removed from Council’s website approximately one year ago. Mr. Lewis also identified ICN 12-006 which was issued on October 5, 2012 and published on Council’s website on or shortly after that date.

Mr. Lewis testified that he wrote to the Nominee on September 21, 2016 regarding his investigation and requested further information from the Licensees by October 12, 2016. The Nominee responded on November 2, 2016 and provided some information and documentation. On April 4, 2018, Mr. Lewis emailed Mr. Leys and requested further materials:

Could you please provide copies of documents (quote provided to consumer, application completed by dealership/consumer online and signed by the consumer, confirmation that application was approved, policy contract with terms and conditions, welcome letter and any other transactional documents) for about 3 to 5 GAP purchases in BC?

The documents provided in the past were blank documents and not actual transactional documents. You may redact personal client information.

Report of the Hearing Committee James McGregor, On Track Insurance Services Ltd. and Haig & Associates Inc. Date of Hearing: May 28, 2019 Page 6 of 15

Mr. Leys responded on April 10, 2018 and stated that it may be difficult to obtain those documents as they allowed the Dealerships to store the original application documents and would likely be in deep storage and, given the departure from the British Columbia market, would not be agreeable to working with them on this. The Hearing Committee asked Mr. Lewis if the documents that he requested were ever provided to him and Mr. Lewis confirmed that they were not.

Mr. Lewis identified a spreadsheet that he created during his investigation after he received the set of documents from the Nominee in November 2016. He extracted information and synthesized the total retail price of each insured vehicle, the fee to On Track and the fee retained by the dealer to arrive at the numbers as set out in the Agreed Statement of Facts (Exhibit 1).

In cross-examination, Mr. Lewis confirmed that at all times the Nominee and Mr. Leys were cooperative with the investigation. Mr. Lewis was asked a series of questions about who had made the complaint about the Licensees to Council and he confirmed that the complaint was made anonymously. Counsel for the Licensees suggested that it may have been a competitor who complained. The Hearing Committee notes that the Nominee suggested the same thing in his interview with Council on September 11, 2017. Upon objection to the question from counsel for Council, counsel for the Licensees maintained that the motives of the complainant may be relevant to the penalty imposed.

Evidence of Clayton Leys Mr. Leys gave evidence of his history in the insurance industry including his first experience with the GAP product commencing in 2006. Prior to 2006 he was an independent agent for ancillary products under On Track. His background was in the automotive business before he turned to insurance. He confirmed he had no discipline history with insurance regulators. Mr. Leys also described his involvement in his community, both with girls’ hockey and Girl Guides.

In late 2011, he was notified by the insurer he was dealing with at the time that it was going to exit the market with the GAP product and ultimately did so in 2012. When he heard this he began looking for a new provider and made contact with the GAP Insurer, which already had one GAP program at that time. Mr. Leys had discussions with the GAP Insurer about the product, which included contemplation that at some point it may be regulated as an insurance product, so it was determined that a new company should be formed to comply with any eventual regulations of the GAP product. It was also during those discussions that the GAP Insurer agreed to take on any compliance issues. Mr. Leys dealt with Mr. Y at the GAP Insurer and another person whose title he could not recall but who may have been Mr. Y’s assistant.

The GAP product was initially sold in Manitoba and then the program was rolled out east across the country through to the Maritimes. Mr. Leys took the Hearing Committee through two memoranda that he had requested from the GAP Insurer confirming that the program was in compliance with provincial regulations in New Brunswick and Nova Scotia. He admitted that a

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competitor had suggested that it was not compliant and this concerned him so he requested written confirmation from the GAP Insurer that they were in compliance.

After the eastern rollout of the product, the Licensees looked to British Columbia. Mr. Leys said that the GAP Insurer prepared all of the documents required for the program and the process and workflow was identical to the other provinces. Mr. Leys once again sought assurances from the GAP Insurer that the program was in compliance with British Columbia regulatory requirements and the GAP Insurer assured him that it was, which was the email which was included with the Agreed Statement of Facts and excerpted above. The agreements and amending agreements signed by Mr. Leys to start the GAP program were also marked as being reviewed by the GAP Insurer’s Legal Department. The program commenced in British Columbia on August 18, 2014.

Mr. Leys testified that on or about May 17, 2016, the Nominee showed him a letter that he had received from Council about GAP and together they decided that they should shut down the website for creation of GAP applications in British Columbia. This was done by early June 2016.

With respect to the spreadsheet that Mr. Lewis had prepared, he stated that the Dealer Marketing Fee was set at a maximum of $1,500 and if you look at the numbers, many were below that number and none were above it. 1 Mr. Leys concluded his direct examination by apologizing to Council. He stated he did not mean to come to British Columbia and cause malice and he regrets the inconvenience he has caused.

Mr. Leys agreed with many of the questions put to him in cross-examination: that the majority of the fees paid by the consumer for the GAP product was the Dealer Marketing Fee; that he personally took no steps to ensure compliance with the British Columbia regulatory system; that he depended on the GAP Insurer for compliance; that he reviewed the agreements (and amending agreements) with the GAP Insurer before signing them and that those agreements put obligations on the broker to comply with local laws. Mr. Leys suggested that despite what the agreement specifically stated about the broker’s obligations, that was not how compliance works in practice.

In response to questions from the Hearing Committee, Mr. Leys stated that he never informed the GAP Insurer about the May 17, 2016 letter from Council about GAP and its non-compliance with British Columbia requirements. In fact, he said that he has not spoken to the GAP Insurer about the issue since that time. Upon receipt of the letter Mr. Leys and the Nominee decided to take it upon themselves to rectify the issues raised by Council by shutting the program down.

The Nominee’s Evidence The Nominee testified that his insurance career began in September 1964 when he started as a clerk and a junior underwriter. He has worked continuously in the insurance industry since that

1 The Agreed Statement of Facts entered as Exhibit 1 confirmed that the Dealer Marketing Fee could actually be up to $2,000, although it appears as if no fee was in excess of $1,500.

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time with the exception of two years when he was studying for a degree in economics, although he is now semi-retired. He confirmed that he is the Nominee and principal of Haig and its director, officer and sole shareholder. Haig maintains a retail insurance license but with day to day business there are no premiums associated with Haig. It is mainly used to facilitate policies. The Nominee walked the Hearing Committee through his resume in some detail as well as his community activities. He expressed how difficult it was for him to be in this position of disciplinary proceedings before Council after making insurance his life’s work.

The Nominee gave evidence that his first involvement with GAP was in either late 2012 or early 2013 when his lawyer approached him to see if he could assist On Track in attracting a market for the product. As he had been a President’s Club member at the GAP Insurer he approached its specialty lines department. The GAP Insurer confirmed that it would be happy to consider the product. There was an existing GAP program in place at the GAP Insurer but several meetings took place to arrange for this particular GAP product to be offered. During these meetings it became apparent to him that different provinces treated the product differently. Some treated it as a warranty product and some treated it as an insurance product. To address these differences he recommended that a license should be obtained for any jurisdiction the GAP product was to be sold. He became licensed in British Columbia in 2015.

The Nominee confirmed that he was aware of his professional responsibilities as a nominee and he believed that they were compliant in British Columbia. With the benefit of hindsight, he expressed regret that they were not in fact compliant in British Columbia and that they were not more diligent. He relied on the GAP Insurer for compliance in any other jurisdiction in Canada and took its August 2014 email as “gospel”. He stated that if he had discovered that they were not compliant prior to Council’s involvement that he would have taken immediate steps to remedy the situation. As soon as he received Council’s May 17, 2016 letter he asked Mr. Leys about the situation. The Nominee framed the decision to end the program slightly differently than Mr. Leys as he said the decision was somewhat taken out of their hands. He explained that the GAP Insurer was exiting the market and they were working to have another insurer take over the product. In the end that insurer was not interested and there was no one to offer the product any longer.

In response to his counsel’s question as to whether there was anything he wished to add to his evidence the Nominee stated that he apologized to Council and that there was no intention behind his actions. He has never had any discipline imposed on him in 54 years in the industry and it was a mistake to rely on the GAP Insurer. As the Nominee, he accepted that responsibility rested with him to be aware of the compliance issues in every province and there was never any attempt to deliberately circumvent the rules in British Columbia. The 2001 bulletin issued by Council was years before they were even present in our province. He thought that they were compliant and were just offering a specific product to British Columbia consumers who were financing vehicles.