Professional liability insurance

To be authorized to pursue activities, you must hold valid professional liability insurance that is consistent with regulatory requirements.

Professional liability insurance covers, within the limits of the purchased coverage, insured firms, independent partnerships and independent representatives against the monetary consequences of their liability or that of their employees, partners, mandataries and trainees in the event of error, omission, fault or negligence committed when carrying out their activities.

Professional liability insurance does not cover intentional fault.

Regulatory Changes and Transitional Measures

The regulatory amendments respecting professional liability insurance came into force on June 1, 2023 further to the public consultation that ended on February 6, 2023. These amendments relate only to the Act respecting  the distribution of financial products and services This link will open in a new window (the “Distribution Act”) and include:

  • Adding a clause requiring consistency with the regulatory requirements of the Distribution Act
  • Covering gross fault (a policy may not exclude coverage in respect of gross fault)
  • Adding revocation of registration (voluntary cessation of activities) to the clause extending the period of insurance for a further term of five years.

A transition period has been provided to facilitate adoption of the new requirements and avoid changes having to be made to professional liability insurance policies with insurance contracts that are in effect. This transition period began on June 1, 2023 and will end on June 1, 2024.

June 1, 2023

From June 1, 2023 to June 1, 2024

Registrants and representatives benefit from a transition period to bring themselves into compliance with the new regulatory requirements.

October 1, 2023

From October 1, 2023 to June 1, 2024

Registrants and representatives with insurance policies that expire between October 1, 2023 and June 1, 2024 should use their renewal as an opportunity to make the policies consistent with the new regulatory requirements. If they don’t, they will have to request to have their insurance policies changed before June 1, 2024.

January 27, 2024

Transmission of proof of maintenance of insurance upon expiry will be replaced by a declaration by the registrant in the maintenance of registration form.

June 1, 2024

From June 1, 2024 to October 1, 2024

Registrants and representatives with insurance policies that expire between June 1 and September 30, 2023 have 12 months after purchase or renewal to transition to the new regulatory requirements.

October 1, 2024

Phase 1: June 1 to September 30, 2023

During this phase, insurers will be asked to make the necessary adjustments to render their professional liability insurance contracts consistent with the new regulatory requirements. Any insurer capable of providing a professional liability insurance policy that is consistent with the new requirements at the time of contract purchase or renewal must make the necessary changes immediately.

Where a professional liability insurance policy expires between June 1, 2023 and September 30, 2023, the policy will have to be consistent with the new regulatory requirements not later than 12 months after the date on which the contract is purchased or renewed.

For professional liability insurance policies to be purchased or renewed for a term exceeding 12 months, the transition period would not be extended.

 

Phase 2: October 1, 2023 to June 1, 2024

Where a professional liability insurance policy is purchased or renewed on or after October 1, 2023, it will have to be consistent with the new regulatory requirements not later than June 1, 2024.

Registrants and representatives are invited to ask their insurers or insurance brokers to provide an insurance contract that is consistent with the new regulatory requirements at the time of contract purchase or to make the changes needed to ensure that their contracts are consistent with the new requirements at the time of renewal. That way, they will avoid having to subsequently request changes to their insurance contracts, which are required to be consistent with the new requirements effective June 1, 2024.

Replacement of the proof of maintenance requirement for professional liability insurance

Concurrently, the proof of maintenance of professional liability insurance requirement will be replaced on January 27, 2024 with a declaration by the registrant in the maintenance of registration form that the insurance policy is consistent with the requirements prescribed by the Distribution Act and its regulations. This change is intended to reduce registrants’ administrative burden. For supervisory purposes, the AMF may request that a registrant transmit proof of maintenance of their insurance to the AMF within 30 days of the AMF requesting it.

Requirements to be met on or before June 1, 2024 for professional liability insurance policies

Firms, independent partnerships, independent representatives and representatives acting on behalf of, but not employed by, a firm must have a liability insurance policy in effect.

Subject to the transitional provisions, the contract must include mandatory clauses that vary according to the way registrants and representatives carry on business.

The information contained in the professional liability insurance contract must be consistent with the requirements of the Distribution Act and its regulations. If the contract is not in effect or not consistent with the requirements of the Distribution Act and its regulations, penalties may be imposed.

Coverage and deductible amounts

The professional liability insurance contract must clearly indicate the coverage amounts. The regulations prescribe the minimum coverage amounts and maximum deductible amounts for each way of carrying on business.

  • Independent representative, representative acting on behalf of, but not employed by, a firm, firm or independent partnership with three or fewer representatives:

    • $500,000 per claim
    • $1,000,000 total per year
    • $10,000 deductible
  • Firm or independent partnership with four or more representatives:

    • $500,000 per claim
    • $2,000,000 total per year
    • $25,000 deductible

The deductible stipulated in the professional liability insurance contract for independent representatives, firms and independent partnerships may be greater than the maximum amount allowed, provided that the insured maintains at all times liquid assets at least equal to the amount stipulated in the contract.

Type of liability

The professional liability insurance policy must cover:

  • liability arising from the fault, including gross fault, errors, negligence or omissions ("defaults") committed by an independent representative, a firm, a representative acting on behalf of, but not employed by, a firm, or an independent partnership in the pursuit of their professional activities
    • Note: coverage respecting gross fault may not be excluded from the contract. However, gross fault does not have to be explicitly indicated in the professional liability insurance policy, as gross fault is included in fault if it is not excluded;
  • defaults committed by the partners (in the case of an independent partnership), mandataries, employees or trainees of representatives of an independent representative, a firm, a representative acting on behalf of, but not employed by, a firm, or an independent representative
  • liability of such individuals in the performance of their duties, regardless of whether they are still so engaged on the date of the claim. They do not need to be named as insureds in the policy, but they must be included in the coverage of the independent representative, the firm, the representative acting on behalf of, but not employed by, a firm, or the independent partnership on behalf of which they are acting

Two or more insureds and severability of insurance

Although a professional liability insurance policy may be issued in the names of two or more insureds, each named insured must benefit individually from the minimum coverage amounts prescribed by regulation. Therefore, a coverage limit cannot be shared between two or more named insureds.

Term of coverage

A professional liability insurance policy must be issued for a period of at least 12 months.

A policy may be issued for a period of more than 12 months for the purpose of aligning the policy expiry date with the renewal date of the representative’s certificate or the firm’s, independent partnership’s or independent representative’s maintenance of registration date. In this case, the coverage amounts must be adjusted to reflect the period of use in order to be consistent with the regulatory requirements.

Refund of premium

The Civil Code of Québec This link will open in a new window requires the insurer to refund any overpayment of premium if the professional liability insurance policy is cancelled (whether by the insurer or the insured).

Maintenance of coverage

The professional liability insurance contract must provide that the coverage will extend beyond the period of insurance set out in the contract for a further term of five years in respect of all the activities contemplated by the coverage where a representative acting on behalf of, but not employed by, a firm ceases to pursue activities, temporarily or permanently, whether or not the person has died. A similar extension is required for an independent representative, a firm or an independent partnerships, but from the time that registration is revoked, cancelled or suspended, whether or not the firm or partnership as been dissolved or whether or not the person has died.

The clause extending the coverage period must be incorporated into the professional liability insurance contract and not be subject to the discretion of the insured or the insurer. Upon the occurrence of the event concerned (cessation of activities, death, cancellation, revocation or suspension), the insured must be able to automatically benefit from the five-year extension, and the insurer must grant it without conditions.

This extension of coverage must apply, in the case of an independent representative, firm or independent partnership, from the date the AMF cancels, revokes or suspends its registration or, in the case of a representative acting on behalf of, but not employed by, a firm, from the date on which he or she ceases to pursue activities.

“Consistency” clause

The professional liability insurance contract must include a “consistency” clause stating that the insurance contract is considered to include coverage at least equal to the coverage required by regulation—namely, the Regulation respecting firms, independent representatives and independent partnerships This link will open in a new window or the Regulation respecting the pursuit of activities as a representative This link will open in a new window.

Notices to the Autorité des marchés financiers

The insurer must notify the AMF:

  • of its intention not to renew a contract or to cancel (terminate) a contract 30 days prior to the date of non-renewal or cancellation (termination);
  • upon receiving notice of non-renewal or cancellation (termination) from the insured;
  • upon receiving any claim, regardless of whether the insurer decides to honour it.

Québec endorsement

A Québec endorsement is a document that may be attached to the professional liability insurance policy if a contract underwritten by an insurer does not meet the regulatory requirements for Québec.

The endorsement may, among other things, specify the sectors and ways of carrying on business covered, using the correct terminology, and the applicable coverage and deductible amounts. The endorsement may also contain the mandatory clauses, including the “consistency” clause, as well as specific provisions pertaining to the severability of the insurance contract, the five-year extension of coverage, and notices to the AMF.

Defence costs

As set out in the Code civil of Québec This link will open in a new window, defence costs and interest on the proceeds of the insurance are borne by the insurer over and above the proceeds of the insurance. They must therefore be excluded from the amount of coverage.

“Registrant” means any firm, independent partnership or independent representative governed by the Distribution Act and any firm registered in mutual funds or scholarship plans.

As a registrant, you are responsible for maintaining professional liability insurance that is consistent with regulations at all times. You must also ensure that any representative acting on your behalf without being an employee maintains liability insurance coverage that is consistent with regulatory requirements.

You must therefore put rigorous processes in place within your business to avoid gaps or interruptions in insurance coverage. Examples of good practices include :

  • Requesting and keeping all your proofs of insurance, including those of all representatives attached to your firm
  • Implementing a tool to track insurance policy expiries

The AMF may request proof of maintenance of professional insurance at any time.

The term “firm” is used here solely for ease of reading and should be read as also referring to independent partnerships and independent representatives.

Failure to maintain professional liability insurance that is consistent with the Distribution Act This link will open in a new window and its regulations has serious implications.

The AMF may suspend the registration of a firm if it or any of its representatives do not maintain professional liability insurance that is consistent with regulatory requirements at all times or if it does not provide the proofs of insurance required by the AMF within the prescribed time period. The AMF may cancel a firm’s registration if it has failed to submit such proof for a second or subsequent time.

Firms can therefore lose the right to practise if they fail to maintain a professional liability insurance contract that is consistent with regulations.

Steps for the suspension or cancellation of registration

Steps

  1. Notice issued by the AMF prior to a decision

    A firm that fails to comply with its obligation to maintain professional liability insurance will receive a notice from the AMF stating its intention to issue a decision to suspend or cancel its registration.

    The firm will then have 15 days from receipt of the notice to submit its observations and any requested document(s) to the AMF via E-Services or by mail.

  2. Suspension or cancellation of registration

    Subject to any observations and documents submitted to it, the AMF will send the decision to the firm that has failed to submit proof of maintenance of professional liability insurance.

    The firm and all its representatives will then have to cease to pursue activities until the suspension is lifted.

    Decisions rendered by the AMF are published in its Bulletin.

  3. Procedure for lifting the suspension of registration

    The suspension will be lifted as soon as the AMF receives the requested document(s). Confirmation that the suspension has been lifted will be sent to the firm.

Links to sections pertaining to professional liability insurance:

Act respecting the distribution of financial products and services

Sections: 76 This link will open in a new window78 This link will open in a new window83 This link will open in a new window131 This link will open in a new window132 This link will open in a new window136 This link will open in a new window

Regulation respecting the pursuit of activities as a representative Section 17 This link will open in a new window
Regulation respecting firms, independent representatives and independent partnerships Section 29 This link will open in a new window
Securities Regulation Sections: 193, 194, 195 This link will open in a new window

Definitions of terms relating to professional liability insurance

Insurer

The insurer covers the liability of the legal or natural person registered with the AMF (the “insured”). Should not be confused with the insurance broker that issues the policy on behalf of the insurer.

Professional liability insurance contract

Contract under which an insurer undertakes, in exchange for a premium, to cover the liability of the insureds in the event of a claim. The policy is the document that attests to the existence of the insurance contract and contains all of the clauses specific to the contract.

Professional liability insurance certificate

Document issued by the insurer that certifies the existence of a contract covering the liability and summarizing the coverage under the policy. It is the equivalent of the certificate of insurance that you receive with your automobile insurance policy. Some insurers call this an “insurance card.”

Insurance policy endorsement

Amendment to an insurance contract to add coverage or adjust clauses. For example, an endorsement could be used to align an insurance contract with Québec regulatory requirements.

Representative attached to a firm as an employee

Revenu Québec considers a person to be an employee if, under a written or verbal contract, he undertakes to do work for remuneration under the direction or control of a firm.

Representative attached to a firm without being an employeeNOTE

Revenu Québec considers a person to be a self-employed worker if he is free to choose the means of carrying out a contract and no relationship of subordination exists between the worker and the firm. He can act on behalf of one or more firms, an independent partnership, a mutual fund dealer or a scholarship plan dealer.

Representatives attached to, but not employed by, a firm are not automatically covered by the firm's liability insurance contract. The firm these representatives act on behalf of must ask them to purchase professional liability insurance contracts similar to the one for independent representatives (See the Regulation respecting the pursuit of activities as a representative This link will open in a new window).

However, some insurance contracts purchased by firms may include additional clauses allowing for the coverage of such representatives. This type of contract must be reviewed carefully to ensure that the representatives are covered for all sectors in which they are legally authorized to act and the amounts prescribed by the Regulation respecting firms, independent representatives and independent partnership This link will open in a new windows.

FOR REPRESENTATIVES ATTACHED TO TWO OR MORE FIRMS – The firms the representative is attached to will have to demonstrate that the representative is adequately covered for all his or her activities, regardless of the number of firms he or she is attached to.