Your Professional Obligations Always Follow You
With the help of his personal lines manager (also a personal lines damage insurance broker), a commercial lines damage insurance broker and president of his own firm created an insurance program specifically for clients who lease their vehicle through a car leasing company, henceforth referred to as ABC Inc.
The investigation revealed that damage insurance brokers did not personally collect the information required to identify the clients’ needs, nor did they explain how the insurance product would meet the clients’ insurance needs or the exclusions in the contracts.
These tasks were all carried out by employees of ABC Inc., who simply presented the application that had been signed at the car dealership. All documents related to the policy’s issuance such as the insurance certificate, the proof of coverage and the invoice for payment of the insurance premium went through these employees. The broker never had any contact with the insureds
The ethics investigation found that this insurance program did not always place the insureds’ needs above those of the firm or any other party, since it charged administration fees for and on behalf of ABC Inc. upon issuance and renewal of the policy, although these fees were neither disclosed nor explained to the insureds.
The Formal Complaints
Two formal complaints were filed before the Discipline Committee1: one against the president of the firm and the other against the personal lines insurance manager. Essentially, these complaints faulted the representatives for “having established, used or tolerated policies, practices or procedures that resulted in him, his firm, his employees, his mandataries and/or damage insurance representatives failing to respect their professional obligations towards the clients, both in general and in fifteen (15) specific cases.”
The relevant professional obligations read as follows:
The Act respecting the distribution of financial products and services
Section 27: Insurance representatives must personally gather the information that is necessary to assess a client’s needs, in order to propose the insurance product that best meets those needs.
Section 28: Insurance representatives must, before making an insurance contract, describe the proposed product to the client in relation to the needs identified and specify the nature of the coverage offered.
Insurance representatives must also indicate clearly to the client any particular exclusion of coverage, if any, having regard to the needs identified and provide the client with the required explanations regarding such exclusions.
Section 85: A firm and its executive officers shall oversee the conduct of the firm’s representatives. They shall ensure that the representatives comply with this Act and the regulations.
The Code of ethics of damage insurance representatives
Section 19: A damage insurance representative must always place the interests of the insured and of all prospective clients before his own interests and those of any other person or institution.
Section 37: The fact that a damage insurance representative acts contrary to the honour and dignity of the profession constitutes a breach of the Code of ethics, including:
(10) concealing or knowingly withholding that which a legislative or regulatory provision requires him to disclose;
(13) charging for professional services not rendered or falsely described.
The Disciplinary Rulings
After entering a guilty plea, the Discipline Committee found both brokers guilty. The first broker was sentenced to a total fine of $40,000 and had his name struck off the roll for two months while the second received a total fine of $25,000 and was struck off the roll for one month. Both respondents were required within twelve months to take and pass course C-130, Essential Skills for the Insurance Broker and Agent, a course offered by the Institut d’assurance de dommages du Québec.
This story brings to mind a ruling the Discipline Committee handed down on October 20, 20102, which dealt with a similar situation. A damage insurance broker had created a motorcycle insurance program whereby motorcycle dealerships provided the broker with the information required to draw up a quote. If the quote was accepted, the broker requested that the insurance contract be issued without ever having spoken to the insured. The Discipline Committee noted, moreover, that the “obligation to personally gather the information is closely tied to the obligation to advise the client on the insurance product that best meets his needs.” The Committee added, “In a nutshell, in order to protect the public, representatives and brokers cannot limit their role to that of a ‘simple insurance salesperson’.
The 2010 ruling dealt with the actions of a damage insurance broker who merely followed the instructions of her employer, who had set up this kind of insurance program without giving any thought to its ethical consequences. Even though the case presented in this article applies to firm managers—in other words certified individuals who play a supervisory role—it is important to recognize that all certified representatives must respect their code of ethics. The Discipline Committee wrote that “as a professional, the respondent had ethical obligations that went beyond the instructions she may have received from her employer; it is worthwhile remembering that a damage insurance broker must maintain his professional independence at all times and respect both the letter and the spirit of his code of ethics, which is designed to uphold public order.”