Montréal - On November 21, 2013, the Supreme Court of Canada, in a majority judgment, dismissed the appeal of La Souveraine, compagnie d'assurance générale, thereby affirming the Québec Court of Appeal's ruling that an insurer which distributes its products in Québec must ensure that it only does so through insurance brokers duly registered with the Autorité des marchés financiers ("AMF").
In the case under in question, La Souveraine knew as early as April 2005 that the AMF was investigating some of its inventory policies issued to Québec recreational vehicle dealerships which were distributed without a licence by Flanders Insurance Management and Administrative Services Ltd., a Manitoba-based insurance firm that was not registered in Québec. It nonetheless authorized Flanders to renew the 56 insurance policies in question in August 2005 since it mistakenly believed that the firm was not required to be registered with the AMF. La Souveraine also argued that it was not liable because it did not intentionally breach An Act respecting the distribution of financial products and services ("Distribution Act").
According to the Honourable Justice Richard Wagner, this defence is inadmissible since the offence under section 482 of the Distribution Act is one of strict liability which does not require proof of intent, and a mistake of law is not a valid defence and cannot be equated with due diligence as an excuse for the commission of a public welfare offence.
The purpose of section 482 of the Distribution Act is essentially to remind insurers that they must only draw on brokers registered in Québec to distribute their products. This requirement is designed to ensure that brokers meet the standards of honesty, loyalty, competence and professional integrity that the public has a right to expect.
In other words, the Supreme Court of Canada clearly held that insurers must set up an adequate compliance program to ensure that their products are distributed in accordance with the public order provisions of the Distribution Act, failing which they could incur penal liability.
The Supreme Court of Canada therefore restored the initial Court of Québec judgment handed down on November 10, 2008 which convicted La Souveraine of the 56 offences with which it was charged and ordered it to pay a total of $560,000 in fines.
The Autorité des marchés financiers (the AMF) is the regulatory and oversight body for Québec's financial sector.
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