Brokerage wins limited injunction against regulator’s new rule

FS Insurance Brokers (FSIB), a B.C. insurance broker that has common ownership with a strata property management company, has won a limited injunction against a new rule proposed by the province’s broker regulator, pending judicial review of the new rule.

The Insurance Council of B.C.’s new rule appears to be aimed at FS Insurance Brokers’ unique business model. Although the new rule has not been tested yet, FSIB is worried it could prohibit the brokerage from engaging in ‘insurance business,’ as defined under the Financial Institutions Act, with strata corporations that are managed by First Service Residential BC (FSR).

FSR is a strata property manager owning FS Insurance Brokers. Council’s new rule is intended to address a perceived conflict of interest raised by the common ownership, which remains a matter of dispute and was not resolved in this particular decision.

Unsure of how council intends to apply the new rule, FSIB asked the B.C. Supreme Court for an injunction preventing the broker regulator from imposing the new rule on the brokerage until a judicial review resolves several matters under dispute.

First, FSIB denies it is engaged in ‘insurance business’ with FSR-owned strata companies. Second, it says the Financial Institutions Act does not preclude the brokerage from receiving a portion of commissions BFL Canada receives by selling insurance to FSR-owned strata companies.

FSIB’s business model is to provide services solely to FSR BC-managed strata corporations. FSIB “does not directly provide insurance agency services to these FSR BC-managed strata corporations (or to anyone else for that matter),” the B.C. Supreme Court found in a decision released last Monday. “Instead, it has made a business services agreement with another licensed insurance broker, BFL Canada Insurance Services Inc., which provides those agency services.

“FSIB says that it advises and provides information to BFL that assists BFL in designing insurance programs to suit the particular needs of FSR BC-managed stratas. It says it also provides education, advice, and support to those strata corporations to help them choose a suitable insurance program while trying to keep premiums low.

“This includes education about particular risks facing B.C. strata corporations and strategies for minimizing those risks so that the strata corporation’s insurance premiums can be minimized through reduced claims.”

The court decision noted FSR BC-managed stratas are not obligated to use BFL Canada’s services to obtain insurance, nor do all of them. BFL shares with FSIB a portion of the commissions it makes from the sale of insurance to FSR-owned strata corporations.

Prior to seeking the court injunction, FSIB sought guidance from the council about how the new rule might be applied to them. It likened operating its business under threat of the new rule to having a black cloud hanging over its head.

Typically, council would receive a complaint about a brokerage, investigate, and then issue a ruling that would clarify how a rule is applied. In this case, a month before the new rule was to take effect, council offered to provide guidance to FSIB on the new rule, which the court noted was all the council was obligated to do.

The court declined to issue any finding on council’s new rule. If a court were to determine how council’s new rule should be defined prior to a council ruling, the decision stated, then the court would essentially usurp the broker regulator’s function.

That said, the court found the brokerage raised a number of serious issues requiring a judicial review before the new rule might be applied to FSIB. It therefore offered a limited injunction that prevented council from applying the new rule to FSIB, pending the judicial review.

Under the injunction, council can still receive complaints about FSIB’s activities as they relate to the new rule. Plus, it can still investigate those complaints and still issue remedial ‘reminder letters’ to FSIB while the injunction is in place.

The broker regulator cannot sanction, fine or penalize FSIB for operating under its business model while the injunction is in effect. However, if the judicial review upholds council’s new rule, it could then be applied to FSIB.

Feature image courtesy of iStock.com/Iryna Drozd