Car dealership fined for not sending premiums for warranties to insurer

An Alberta car dealership selling equipment warranties but not submitting the premiums to the insurer has been fined $85,000 by the province’s insurance regulator.

Alberta Insurance Council [AIC] noted in its November 2023 decision that Penhold Car Farmers sold 17 equipment warranties for which it had not turned over the premiums to the unnamed insurer. The car dealership did not respond to multiple inquiries by the insurer over a span of four months requesting immediate payment.

The Council issued $5,000 fines — the maximum fine possible — for each of the 17 individual warranties in question (totalling $85,000), citing the car dealership’s uncooperative posture with the insurance regulator.

“The Council took specific issue with the information from the [insurer’s] email [to the council’s investigator] dated May 12, 2022. The email provided that the warranty provider [the insurer] contacted the dealership twenty-two (22) times by way of email or phone call, in an attempt to collect the outstanding premium amounts.

“Despite the knowledge that the dealership did eventually make full payment of the outstanding premium amount to the warranty provider, it is the council’s opinion that the dealership knowingly and intentionally failed to remit premium payments immediately to the warranty provider, despite the numerous attempts made by the warranty provider to collect those premiums.

“Consumers who purchase warranty products expect that insurance intermediaries will act with the utmost good faith while carrying out their work. Honesty and integrity are the hallmarks of a good insurance intermediary, especially when client funds are involved.

“It is not unreasonable to expect that a high standard of due diligence be practiced by insurance intermediaries when soliciting warranty products. Understandably, clients can experience severe difficulties when warranties are not in place, when a client believes the warranty is in place, as they expose clients to undue risk.”

Penhold Car Farmers held a Restricted Insurance Agent, Auto Dealership Equipment Warranty Insurance certificate of authority from Jan. 30, 2018, to June 30, 2023.

As law firm Walker Sorensen points out, various types of businesses that are not insurance agents or brokers can sell specific types of insurance in Alberta if they hold a restricted insurance agent’s certificate of authority. Under the law, car dealers are allowed to sell equipment warranties and credit-related insurance, but not personal accident insurance.

B.C. is currently developing a restricted insurance license regime, after the government introduced the Financial Institutions Amendment Act in 2019. One part of the law is the introduction of an expanded restricted licensing framework, requiring businesses that offer insurance products incidental to their ordinary business to obtain a licence from the Insurance Council of B.C.

The Alberta Council’s decision raises the question of whether organizations holding a restricted license recognize the insurance regulator’s authority.

“The [AIC]…took issue with the dealership’s failure to cooperate with the AIC throughout the investigation,” the Council’s November decision reads. “As a regulator, the AIC plays a crucial role in maintaining the integrity and fairness of the insurance industry alongside protecting Alberta insurance consumers from the misconduct of insurance intermediaries.

“Failing to cooperate with the AIC demonstrates a blatant disregard to the insurance industry and the AIC as a regulator.”

Feature image courtesy of iStock.com/Hispanolistic