Insurance Council of British Columbia

In the Matter of The FINANCIAL INSTITUTIONS ACT (the "Act") (RSBC 1996, c.141)

and The INSURANCE COUNCIL OF BRITISH COLUMBIA ("Council")

and PELLING & ASSOCIATES INSURANCE BROKERS CONSULTANTS INC. (the "Agency")

ORDER As Council made an intended decision on January 11, 2011, pursuant to sections 231, 236 and 241.1 of the Act; and

As Council, in accordance with section 237 of the Act, provided the Agency with written reasons and notice of the intended decision dated March 18, 2011; and

As the Agency has not requested a hearing of Council's intended decision within the time period provided by the Act;

Under authority of sections 231, 236 and 241.1 of the Act, Council orders: 1. the Agency is fined $5,000.00; 2. the Agency is assessed Council's investigative costs of $687.50; and 3. a condition is imposed on the Agency's general insurance licence that the Agency pay the above mentioned fine and investigative costs no later than July 13,2011. If the Agency does not pay the ordered fine and investigative costs in full by this date, the Agency's general insurance licence is suspended as of July 14, 2011, without further action from Council and the Agency will not be permitted to complete any annual filing until such time as the ordered fine and investigative costs are paid in full.

This Order takes effect on the 13 th day of April, 2011. Barbara MacKinnon, CAIB Chairperson, Insurance Council of British Columbia

In the Matter of The FINANCIAL INSTITUTIONS ACT (the "Act") (RSBC 1996, c.141)

and The INSURANCE COUNCIL OF BRITISH COLUMBIA ("Council")

and ROBERT BRADLEY PELLING (the "Licensee")

ORDER As Council made an intended decision on January 11, 2011, pursuant to sections 231 and 236 of the Act; and

As Council, in accordance with section 237 of the Act, provided the Licensee with written reasons and notice of the intended decision dated March 18, 2011; and

As the Licensee has not requested a hearing of Council's intended decision within the time period provided by the Act;

Under authority of sections 231 and 236 of the Act, Council orders: 1. the Licensee is fined $5,000.00; and 2. a condition imposed on the Licensee's general insurance licence that the Licensee pay the above mentioned fine no later than July 13, 2011. Ifthe Licensee does not pay the ordered fine in full by this date, the Licensee's general insurance licence is suspended as of July 14,2011, without further action from Council and the Licensee will not be permitted to complete any annual filing until such time as the ordered fine is paid in full.

This Order takes effect on the 13 th day of April, 2011. -f!hch.A 8- Chairperson, Insurance Council of British Columbia

• - v """Barbara MacKinnon, CAIB

INTENDED DECISION of the INSURANCE COUNCIL OF BRITISH COLUMBIA ("Council")

respecting PELLING & ASSOCIATES INSURANCE BROKERS CONSULTANTS INC. (the "Agency")

and ROBERT BRADLEY PELLING (the "Nominee")

INTRODUCTION Pursuant to section 232 of the Financial Institutions Act (the "Act"), Council conducted an investigation to determine whether there was compliance by the Agency and the Nominee with the requirements of the Act.

The Agency has an Autoplan Agency Agreement with the Insurance Corporation of British Columbia ("ICBC") that allows it to access an ICBC Autoplan database ("ICBC Extranet"), which maintains insurance records of ICBC insurance policyholders as well as vehicle rating information. In or around the fall of2007, Family Insurance Solutions Inc. ("Family"), a direct competitor ofICBC in the optional automobile insurance market in British Columbia, used the Agency's ICBC Extranet user identification codes ("User IDs") and passwords to access the ICBC Extranet and obtain information on certain ICBC vehicle class rates without the permission ofICBC. Council's investigation addressed whether the Nominee and the Agency permitted, or assisted in Family's unauthorized access of the ICBC Extranet.

An investigation report was presented to Council at its January 11,2011 meeting. At the conclusion of its meeting, Council determined the matter should be disposed of in the manner set out below.

INTENDED DECISION PROCESS Pursuant to section 237 of the Act, Council must provide written notice to the Nominee and the Agency of the action it intends to take under sections 231, 236 and/or 241.1 of the Act before taking any such action. The Nominee and the Agency may then accept Council's decision or request a formal hearing. This intended decision operates as written notice of the action Council intends to take against the Nominee and the Agency.

.. ./2

INTENDED DECISION Pelling & Associates Insurance Brol{ers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 2 of 13

FACTS Based on the information contained in the investigation report, Council made the following findings of fact:

1. the Agency was first licensed as a general insurance corporate agent on October 5, 1999; 2. the Nominee was first licensed with Council on March 18, 1982, as a Levell general insurance salesperson;

3. the Nominee is currently licensed as a Level 3 general insurance agent nominee with the Agency;

4. the Agency offers basic automobile insurance through ICBC as well as optional automobile insurance through ICBC and Family;

5. the Agency is party to an Autoplan Agency Agreement with ICBC that allows it to access ICBC's Extranet provided that this usage is in accordance with conditions set by ICBC. In particular, ICBC Extranet usage is restricted to only allow licensed brokers of ICBC to obtain information in the database, and access to this information is only allowed for the purpose of facilitating ICBC transactions;

6. in 2007, the Agency had two full-time employees and additional part-time employees. The office had approximately six to seven computers. Agency employees could log onto an Agency computer without any passwords or User IDs, however, a User ID and a password were required to log onto ICBC's Extranet;

7. each computer could access the ICBC Extranet. In 2007, all Agency staff used the ICBC Extranet. ICBC Extranet passwords were changed every month by the Agency, which had a set pattern for producing a new password. This was implemented by the Nominee. Each User ID had the same password;

8. each computer had a little sticky note that had a User ID (or more than one User ID) and password written on it. The sticky note was either on the monitor or on the keyboard. The passwords changed at different times for each User ID. For example, one User ID may have a password that would be required to be changed today; and another User ID would have a password that may not be required to change for two weeks;

9. the Agency computers also had Family Point-of-Sale software that allowed for interface with Family and enabled staff at the Agency to access and sell Family's insurance products. In 2007, every employee of the Agency could access Family's Point-of-Sale software;

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 3 of 13

10. around the summer or fall of2007, Family set out to obtain information on certain ICBC vehicle class rates. Family stated that its purpose in doing so was to address concerns that it was undercharging in certain classes of vehicles and its rates were not in-line with ICBC's rates;

11. Family's nominee and Family's president agreed that in order to stay competitive, Family would need assistance from brokers in collecting ICBC vehicle class rates. There were a couple of hundred ICBC rate quotes that Family wanted to obtain;

12. Family determined that the Agency could help in this regard because it was located in Vancouver, it was relatively small, and the nominee of Family and the Nominee were on familiar terms from previous professional experiences;

13. Family's nominee submitted that he briefly spoke with the Nominee on the telephone about obtaining his assistance with gathering vehicle class rating information and the Nominee responded by stating that he was busy and did not have the time to help, however, he could help if Family sent someone to the office. Family's nominee further submitted that he advised the Nominee that he would send Family's Rating Analyst to the Agency to get the information in question;

14. Family's Rating Analyst has a degree in computer science; 15. Family's Rating Analyst was instructed to go to the Agency's office to get this information, to contact the Nominee and make arrangements with him to get the information, and attend the Agency, on more than one occasion as necessary, to achieve this objective;

16. Family's Rating Analyst advised that he did not contact the Nominee in order to arrange a time for his first visit to the Agency. He submitted that he went to the Agency on a day that was selected by Family's nominee;

17. according to Family's Rating Analyst, he drove to the Agency and went inside. He spoke with a staff member, advised the staff member that he was from Family, and asked for the Nominee. Family's Rating Analyst submitted that the Nominee met him at the front of the Agency and then brought him to a room in the back with a computer. He further submitted that he advised the Nominee thathe was there to obtain vehicle rate information and access to the ICBC Extranet and that the Nominee logged him onto the ICBC Extranet and then left the room;

18. Family's Rating Analyst advised that on his first visit to the Agency, he obtained approximately 50 to 80 quotes in the approximate two to three hours he was present at the office. When he was finished for the day, he told someone at the Agency that he was leaving;

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 4 of 13

19. according to Family's Rating Analyst, his second visit to the Agency could have been within the same week as the first visit or the following week. Once again, he went to the front of the office and asked for the Nominee, who then took him to the room in the back and logged him onto the ICBC Extranet;

20. Family's Rating Analyst advised that he visited the Agency's office approximately four to six times for the purpose of collecting ICBC rate information. The length ofthese visits would be approximately thirty minutes to one hour per visit. After the first visit, he usually made arrangements to come back to the Agency by calling the Nominee on his business telephone number;

21. according to Family's Rating Analyst, the Nominee used the Agency's User IDs and the passwords to log him onto the ICBC Extranet on approximately four to six occasions. He recalled one other staff member of the Agency used the User IDs and the passwords to log him onto the ICBC Extranet on approximately two to three occasions, but he could not identify the name of this individual and could not describe her other than to say that she was a female;

22. sometimes the computer that Family's Rating Analyst was using at the Agency would freeze and he would get booted out of the computer. He had obtained some of the User IDs and the passwords from the sticky notes, witnessed an Agency staff member type a User ID on the computer keyboard, or made a mental note when a User ID remained on the screen of the ICBC Extranet after a staff member had already logged him in. He wrote down the User ID after the person left;

23. the User IDs were quite different from one to another. The passwords were easier to determine because ICBC assigns what the User IDs are, whereas the passwords can be chosen by the Agency staff;

24. Family's Rating Analyst advised that he obtained approximately two to three of the User ID's while at the Agency without advising the Nominee that he had done so. This allowed him to use a Family laptop from his home on approximately six occasions to access ICBC rate information on the ICBC Extranet with the Agency's User IDs and the passwords. He found working from the Family laptop at his home to be more efficient than going to the Agency and using one of its computers. He was on the ICBC Extranet for approximately thirty minutes to one hour during each occasion from his home;

25. no other information was taken from the ICBC Extranet, other than vehicle rate information;

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18, 20ll Page 5 of 13

26. ICBC produced documents that show a large amount of rate quotes accessed from the Agency's IP address at the material time:

a) on September 13,2007,65 rate quotes were obtained between 1: 19 p.m. -2:49 p.m.;

b) on September 14,2007,73 rate quotes were obtained between 10:05 a.m.-11 :28 a.m.; and

c) on October 10,2007,86 rate quotes were obtained between 12:00 p.m. - 12:43 p.m. 27. data also shows that the Agency's User IDs were used to log onto ICBC's Extranet in order to obtain these rate quotes;

28. data supplied by ICBC shows that for the period of August 1 - August 31,2007, only 70 rate quotes were done with rate quotes ranging from 0 - 13 rate quotes per day; and for the period of November 1 - November 20,2007, only 40 rate quotes were done in this entire 20 day period, with rate quotes ranging from 0 - 12 rate quotes per day;

29. ICBC data also shows rate quotes accessed from the Family's Rating Analyst's residential IP address at the material time. The available data indicates that on approximately nine occasions between September 22,2007 - October 30,2007, the Agency's User IDs were used to log onto ICBC's Extranet to obtain rate quotes from his residential IP address;

30. in or around November 2007, the Nominee received a call from his ICBC Broker Relations Representative. The ICBC Broker Relations Representative expressed some concern about recent excessive rate quotes from the ICBC codes of the Agency;

31. when the Nominee subsequently met with ICBC and reviewed ICBC reports illustrating the excessive rate quoting, he noticed that many of the incidents had occurred at unusual times when the Agency was closed, such as during evening hours and on Sundays;

32. according to the Nominee, he never had a conversation with Family's nominee about the Agency providing ICBC vehicle rate information to Family, or sending someone from Family to the Agency to get ICBC vehicle rate information. The Nominee does not recall having any conversation with Family's nominee in the fall of2007 regarding the Family nominee sending someone from Family to the Agency's office for any reason at all;

33. the Nominee further submitted that in 2007, he did not know who Family's Rating Analyst was. He briefly met him on one occasion when the Nominee was at the office of Family to have a meeting with the underwriters. Many staff members of Family were briefly introduced to the Nominee on that occasion;

INTENDED DECISION Pelling & Associates Insurance Brol{ers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 6 of 13

34. the Nominee submitted that he did not have any recollection of an individual from Family coming to the office in 2007, or any unauthorized person in the Agency at that time. The Nominee submitted that he never logged anyone other than an employee of the Agency onto the ICBC Extranet. The Nominee stated that he has never given the User IDs and the passwords to anyone other than an employee of the Agency, nor is he aware of any employee of the Agency who has done this;

35. in May 2008, ICBC was able to determine that Family's Rating Analyst had used the Agency's User IDs and passwords to access ICBC's Extranet offsite. In an ICBC Arbitration, ICBC reported that the Nominee was contacted and again asked ifhe had given the passwords or User IDs to anyone,and whether the Nominee knew Family's Rating Analyst. The Nominee did not indicate that he did;

36. in an ICBC Arbitration respecting the matter, an award dated March 30, 2009, concluded that the Agency:

... seriously breached the Agency Agreement by failing to safeguard the user codes and passwordfor the ICEC Extranet. That breach allowed a competitor ofICEC to obtain access to the ICEC Extranet for its own commercial benefit. It is only fortuitous that the user codes andpasswords were not used to access other information that might be available for other purposes. We do not conclude, on the balance ofprobabilities on the evidence before us despite our reservations, that Pelling Insurance was an active participant in the use by [Family's Rating Analyst] ofthe user codes and passwords.

37. in a document dated May 22, 2009, the Pand for the ICBC Arbitration assessed the penalty against the Agency as follows:

The panel directs that commencing June 1, 2009 no commissions shall be paid to Pelling in respect ofany insurance transaction conductedpursuant to the Agency Agreement until the value ofthe unpaid commissions totals $20, 000.

38. Council made a decision effective July 20, 2010, regarding the matter of Family and its nominee, and concluded the following:

Council found ... that the Nominee [ofFamily] and the Agency [Family] failed to act in a trustworthy manner, in goodfaith, and in accordance with the usual practice ofthe business ofinsurance. In particular, through improper means, they obtained vehicle rating information from a competitor that they knew or ought to have known was confidential and which Was not freely available in the public domain.

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 7 of 13

Jn or around the summer of2007, the Nominee [ofFamily] and the Agency [Family] set out to obtain updated rating information on certain classes ofvehicles to stay competitive with an insurance product offered by JCBC. However, instead oftrying to collect rating information through legitimate means, the Nominee directed a Rate Analyst with the Agency [Family] to visit an insurance agency, who represented JCBC, to gather a couple hundred ICBC rate quotes. This was done to obtain a large volume ofrate quotes in a comprehensive and efficient manner. As the Agency [Family] does not represent JCBC, nor does it have access to JCBC rating information, it attended the Broker's [Pelling 's] office to obtain the required information.

The degree to which the Broker [Pelling] was complicit in the arrangement remains to be determined. However, in Council's view, this aspect ofthe case is not determinative ofwhether or not the Nominee [ofFamily] and the Agency's [Family's] decision to collect information to which they were not entitled, and the implementation ofsuch a decision, was appropriate and in accordance with the usual practice ofthe business ofinsurance.

39. Family was fined $20,000.00 and required to pay the costs of Council's investigation into the matter assessed at $4,537.50; and

40. Council ordered Family's nominee to pay afine of$10,000.00 and suspended his nominee's licence for one month.

LEGISLATION Rule 7(8) of the Council Rules (8) A licensee must comply with Council's Code of Conduct, as amended from time to time. Section 231 of the Act Part 7 - Administration of the Regulation of Financial Institutions Division 2 - Insurance Council of British Columbia

Council may suspend, cancel or restrict licences and impose fines (I) If, after due investigation, the council determines that the licensee or fonner licensee or any officer, director, employee, controlling shareholder, partner or nominee of the licensee or former licensee (a) no longer meets a licensing requirement established by a rule made by the council or did not meet that requirement at the time the licence was issued, or at a later time, (b) has breached or is in breach of a term, condition or restriction of the licence of the licensee,

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 8 of 13

(c) has made a I~aterial misstatement in the application for the licence of the licensee or in reply to an inquiry addressed under this Act to the licensee, (d) has refused or neglected to make a prompt reply to an inquiry addressed to the licensee under this Act, (e) has contravened section 79, 94 or 177, or (e.l) has contravened a prescribed provision of the regulations, then the council by order may do one or more of the following: (f) reprimand the licensee or former licensee; (g) suspend or cancel the licence of the licensee; (h) attach conditions to the licence of the licensee or amend any conditions attached to the licence; (i) in appropriate circumstances, amend the licence of the licensee by deleting the name of a nominee; U) require the licensee or former licensee to cease any specified activity related to the conduct of insurance business or to carry out any specified activity related to the conduct of insurance business; (k) in respect of conduct described in paragraph (a), (b), (c), (d), (e), or (e. I), fine the licensee or former licensee an amount (i) not more than $20 000 in the case of a corporation, or (ii) not more than $10 000 in the case of an individual.

(2) A person whose licence is suspended or cancelled under this section must surrender the licence to the council immediately.

(3) If the council makes an order under subsection (1 )(g) to suspend or cancel the licence of an insurance agent, or insurance adjuster, then the licences of any .insurance salesperson employed by the insurance agent, and of any employees of the insurance adjuster are suspended without the necessity of the council taking any action.

(3.1) On application of the person whose licence is suspended under subsection (I )(g), the council may reinstate the licence if the deficiency that resulted in the suspension is remedied.

(4) If an insurance agent's licence or an insurance adjuster's licence is reinstated, the licences of any insurance salespersons or employees of the insurance adjuster who (a) were employed by that agent or adjuster at the time of the suspension, and (b) remain employees ofthat agent or adjuster at the time of reinstatement, are also reinstated without the necessity of the council taking any action.

Section 236 of the Act Part 7 - Administration of the Regulation of Financial Institutions Division 2 - Insurance Council of British Columbia

Power to impose conditions (1) The commission, superintendent or council, depending on which of them has the power to make the order, give the consent or issue the business authorization permit or licence may (a) impose conditions that the person considers necessary or desirable in respect of (i) an order referred to in section 235(1), (ii) a consent referred to in section 235(2), (iii) a business authorization, (iv) a pennit issued under section 187(1), or (v) a licence issued under Division 2 of Part 6, and

INTENDED DECISION Pelling & Associates Insurance Brokers Consultants Inc. and Robert Bradley Pelling File Numbers: 9142563-1595 and 039162-1595 March 18,2011 Page 9 of 13

(b) remove or vary the conditions by own motion or on the application of a person affected by the order or consent, or of the holder of the business authorization, permit or licence.