Supreme Court hears landmark insurance case

Canada’s big banks were at the Supreme Court of Canada on Tuesday, taking on Alberta over the sale of creditor insurance in bank branches.

The Alberta Insurance Council took action against the banks for selling creditor insurance in branches without a licence. The Alberta Court of Appeal ruled that the province has the jurisdiction to require licensing by bank employees distributing insurance. The banks appealed, arguing that the federal government has exclusive authority to regulate banking.

Eight banks are fighting the Alberta decision, along with the Canadian Bankers Association.

“It’s really just a jurisdictional issue for us,” says Maureen Drew-Lytle, the CBA’s senior manager of media relations. “The Canadian constitution gives the federal government jurisdiction over the business of banking. And the federal government has used that power to allow banks to promote certain kinds of insurance products in branches. Things like creditor life insurance, creditor disability insurance. And they have a very close connection with the bank’s activities in carrying on the business of banking. So what we’re saying is, because we’re federally regulated and regulated under the Bank Act, which is federal legislation, that it’s only the federal government that has jurisdiction to regulate the business of banking.”

Drew-Lytle says since this case is narrowly focused on creditor insurance, it has no direct connection to the CBA’s recent campaign to allow banks to offer information on life and health insurance in branches.

Still, Advocis, the only industry association to be granted intervener status in the case (six provinces, a number of insurance companies and the Alberta Insurance Council were granted the same status), believes the case does have wider implications.

In its oral arguments, Advocis asked for uniform standards of professional conduct among all who market insurance products, stating that bank employees who sell insurance to the public should be licensed by provincial regulators, placing all advisors distributing insurance on equal footing.

“We are pursuing a level playing field for financial advisors and an environment that places the consumers’ interest first,” said Advocis chair Gary McLeod. “It’s only fair that all who sell insurance products should abide by the same rules.”

And McLeod disputes the banks’ argument that the provinces have no jurisdiction in this area. “There should not be a two-tier insurance regime where there is one standard for bank employees and a different one for everyone else,” he said. “In this particular case the banks do not believe they should abide by Alberta’s insurance regulation that was largely designed to protect consumers.”

In 1991, the Bank Act was amended to allow banks to establish insurance, securities and trust company subsidiaries, Advocis notes. All three of these areas are provincially regulated. “If the court rules that the banks are immune from the application of provincial regulation for the insurance industry it would follow that the same would hold true for the trust and securities industries.”

This case can have far-reaching implications for all financial advisors and the entire financial sector in Canada and many are not even aware of it, McLeod adds.

A decision from the Supreme Court is not expected for at least several months.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com