Law in Quebec

Up until the ruling Quebec consumers had no recourse against risk management advisors because they operated outside the scope of An Act respecting the distribution of financial products and services (Act) thanks to a loophole in the law.

“This ruling sheds light on what has been considered to be a grey zone,” noted Sylvain Théberge, a spokesman with the Autorité des marchés financiers (AMF), the regulatory and oversight body for Québec’s financial sector. “It’s not because you are an unregistered risk management advisor that the repercussions of the advice being offered will have less of an impact than a consultant who is duly registered. The ruling clearly states that by the very nature of their work these consultants must be duly registered.”

Independent risk management advisors, also known as damage insurance consultants, tend to be hired on a project or retainer basis to help assess and identify risks associated with insurance policies as well as assist with negotiations with insurance brokers. They do not sell insurance, and hence do not receive commissions. The potential gain or loss of commission income does not enter into the decision-making process, which ostensibly eliminates potential conflict of interest. There are no hard figures on how many damage insurance consultants operate in Quebec. But at least one organization encouraged members to use their services. The Union of Quebec Municipalities, which has represented municipalities of every size and in every region of Quebec since its founding in 1919, required its members to hire risk management advisors who were not brokers, agents or insurance representatives.

But on March 2012, after repeated warnings fell on deaf ears, the AMF charged a numbered company operated by damage insurance consultant Claude Descheneaux with three counts of carrying out activities reserved for registered firms and representatives.

Descheneaux argued that there is no mention in the Act that risk management advisors is a profession reserved to brokers, representatives or firms that sell damage insurance. He also noted that Article 6 of the Act states that a damage insurance broker is a natural person who offers a range of damage insurance products from several insurers directly to the public, or who offers damage insurance products from one or more insurers to a firm, an independent representative or an independent partnership. Damage insurance consultants, however, do not offer insurance products and therefore could not have infringed the Act, asserted Descheneaux.

Court of Quebec Justice Monique Perron dismissed his arguments. Justice Perron pointed out that the Act is a law of public order that strives to protect consumers, and it imposes duties and responsibilities on natural or legal persons who offer damage insurance products. Justice Perron added that if the legislator wanted to limit the reach of Article 6 of the Act only to representatives who have the “capacity to sell products,” it would have chosen the expression sell rather than offer. “By using the word offer, the legislator wanted to regulate the greatest number of activities relating to insurance products,” said Justice Perron in her 23-page ruling. She also noted that Article 6 of the Act specifically states that a damage insurance broker also acts as an advisor in damage insurance.

“Whether or not the counsellor sells insurance products, the counsellor plays a role well-beyond of someone who informs a person,” said Justice Perron in Autorité des marchés financiers c. 9111-3258 Québec inc. 2013 QCCQ 13994. “The doctrine in insurance law underlines that a counsellor is an essential actor who guides clients for the best possible coverage…They influence the decision taken by a client to choose one protection over another. After all, the insured consult them to obtain their opinion.”

Justice Perron also pointed out that the simple fact that a risk management advisor does not receive commissions is not a gage of his competence but is “strictly a guarantee of his independence.” She added that the legislator had no intention of prohibiting clients from using the services provided by damage insurance consultants but only that they be regulated by the AMF.

“This is a case where there was a loophole that was exploited by people who did not want to be registered under the guise of being independent,” said Jean Mathieu Potvin, an in-house counsel with La Capitale assurances générales inc. who is also the secretary and treasurer of the Corporation des assureurs directs de dommages du Québec, an industry group representing the Quebec damage insurance industry. “What’s interesting about the ruling is that it states unequivocally that offering advice does not necessarily encompass selling. Whether there is a sale or not, if the advice is inadequate and the consumer suffered harm, the consumer must be protected.”

Yvan Paradis, a lawyer based in the Laurentians who unsuccessfully represented Descheneaux, has a complete different take on the ruling. Paradis, who has in the past worked as a consultant in the former incarnation of the AMF, believes that the ruling may have closed a loophole in the Act but does not respond to the needs of the marketplace. Small business and municipalities will be particularly hard hit by this ruling because they cannot afford to hire a full-time risk management advisor to advise them on damage insurance.

“Insurance representatives and brokers may have a permit but they do not have the experience or expertise in providing advice on damage insurance, especially when risks are complex as is often the case in commercial matters,” said Paradis. “The solution to the problem would be for the government to oblige people who are giving advice over damage insurance to receive training, but that is going nowhere.”

Ironically, says Paradis, the ruling may put into jeopardy the protection of the public. By allowing consultants to be able to offer insurance products and receive a commission, it “considerably modifies his role. He will no longer be independent, and may possilbly lose his objectivity as there is a personal interest involved, that is, the commission he may receive. The conflict of interest is evident,” said Paradis.

Descheneaux, who received a certificate from the AMF as a broker in damage insurance on July 2012, was found guilty of the three charges laid against him by Quebec’s financial watchdog.