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Referrals from Car Dealerships and the Duty to Advise

Publication date: May 31, 2018 | Last update: April 27, 2020

Some insurers and brokerage firms negotiate business partnerships or referral agreements with car dealerships. For instance, a car dealership that is authorized under certain conditions to distribute replacement insurance (Q.P.F. No. 5) will send clients who wish to purchase insurance for their new vehicle to a specific damage insurance agent or broker. It is easy to see why firms, insurers and car dealerships are interested in entering into such agreements. However, even when the client is referred by a car dealership, the damage insurance agent or broker’s duty to advise still holds true.

On a number of occasions, the Syndic’s Office of the ChAD has looked into the ethical behaviour of damage insurance brokers and agents in such situations. Let’s take a closer look at a recent case.


In 2013, the Autorité des marchés financiers sent the Syndic’s Office a complaint from a consumer. The consumer accused the personal-lines damage insurance agent—who the car dealership had recommended he see—of not having proposed the “replacement cost” endorsement (Q.E.F. No. 43). Instead, the agent had encouraged him to opt for Q.P.F. No. 5, which was offered by the dealership in question.

The Syndic’s Office’s investigation revealed that the insurer that employed the agent in question had referral agreements with several car dealerships. Every month, a significant number of clients were steered towards this insurer for car insurance quotes (Q.P.F. No. 1). According to the established procedure, agents had to show clients why it was in their best interest to purchase Q.P.F. No. 5, which was conveniently distributed by the car dealership. Only when the client refused this product did the agent offer and explain Q.E.F. No. 43. Furthermore, the investigation revealed the existence of a partnership between car dealerships that sold Q.P.F. No. 5 and the insurer in question, and noted that the insurer had engaged in this business practice from July 2013 to January 2016.


Following the investigation, the ChAD’s assistant syndic decided to file a formal complaint before the Discipline Committee of the ChAD against the agent in question.1 Essentially, he was faulted for having failed to fulfill his duty to advise, pursuant to section 37 (6) of the Code of ethics of damage insurance representatives, which reads as follows:

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:


(6) failing to act as a conscientious advisor by not informing his clients of their rights and obligations and not giving them all necessary or useful informations;

The ChAD’s assistant syndic also filed three other complaints in connection with the investigation against, respectively, the assistant sales director,2 the senior advisor on partnerships,3 and the vice-president of the Sales Department.4 Essentially, they were faulted for having condoned and ensured the ongoing use of this business practice by encouraging the sale of Q.P.F. No. 5 rather than endorsement Q.E.F. No. 43 without conducting a full needs analysis. This violated section 2 of the Code of ethics of damage insurance representatives, which reads as follows:

2. A damage insurance representative shall insure that he, his mandataries and his employees comply with the provisions of the Act respecting the distribution of financial products and services (chapter D-9.2) and the regulations thereunder.


On June 27, 2017, after they entered a guilty plea, the Discipline Committee found the four respondents guilty, pursuant to the statutory provisions cited above.5

The Discipline Committee concurred with the common sanction recommendations, stating that “the objective seriousness of the offences, together with the length of time they lasted, call for the imposition of heavy fines, which should be calculated according to the degree of involvement of each of the respondents.”

The personal-lines damage insurance agent was fined $3,000 for the single charge against him. The Discipline Committee described his role as limited and subordinate.

The assistant sales director was fined $8,000 and the senior advisor on partnerships was fined $18,000, while the vice-president of the Sales Department received a fine of $25,000. In the latter’s case, the Discipline Committee stated that “he bore a higher ethical responsibility than the other respondents, given his hierarchical position.”


The insurer in question put a stop to this business practice. It is important to remember that the duty to advise is at the very heart of the damage insurance representative’s professional practice. In order to allow consumers to make the best possible decision, they must always have access to all the information they need regarding the various types of coverage available.

By Me Marie-Josée Belhumeur, LL.B., Syndic

1. 2016-05-01 (A).
2. 2016-05-04 (A).
3. 2016-05-03 (A).
4. 2016-05-02 (A).
5. Chambre de l’assurance de dommages c. Martin-Poirier, 2017 CanLII 47413 (QC CDCHAD). [in French only]