New conflict of interest rule imposed on brokers regarding strata properties upheld by the court

Court upheld Insurance Council of BC’s new Rule 7 (11.2) prohibiting brokers from doing insurance business for strata corporations managed by property management companies owned by the brokers.

Administrative law – Judicial review – Ultra vires legislation – Procedural requirements and fairness – Hearings – Standard of review – Reasonabless – Insurance agents and brokers

FS Insurance Brokers, Inc. v. Insurance Council of British Columbia, [2024] B.C.J. No. 1264, British Columbia Supreme Court, July 8, 2024, A.D. Francis J.

The Insurance Council of BC, which licenses and regulates insurance agents, passed Rule 7 (11.2) prohibiting insurance brokers from engaging in insurance business for strata corporations that are managed by a property management company with which the brokers share common ownership. The purpose of the new rule was to address concerns of the real or perceived conflicts of interest arising in such arrangements and to ensure property management companies are unable to benefit from referral fees directly or indirectly. The new rule was introduced, in part, to address confusion that arose from an amendment to s. 178 of the Financial Institutions Act (FIA). The petitioner broker had common ownership with a strata property management company, and as such, would be prohibited under the new rule from engaging in insurance business with any strata corporations managed by that company. The petitioner brought a petition seeking judicial review of the new rule, arguing that it is ultra vires, in part because it undermines the policy objectives underlying s. 178 of the FIA which are to protect insurance consumers and ensure the availability of affordable insurance options.

The court reviewed the appropriate standard of review applicable to regulations and noted there had been some judicial inconsistency in that regard following Vavilov. The court confirmed the applicable standard is reasonableness as described in Vavilov and more recently in the BCCA decision of British Columbia (Attorney General) v. Le. This required the court to consider whether the new rule accords with a reasonable interpretation of the authority conferred by its enabling statute and with the relevant factual and legal constraints, without any normative assessment of its efficacy or underlying policy rationale. The court found the new rule was reasonable and not ultra vires. The court also confirmed that the legislative decision to enact the new rule did not, in the circumstances, attract a duty of fairness; the rule was of general application and was not targeted at the petitioner, despite the latter’s impression to the contrary.

This case was digested by Kara Hill of Harper Grey LLP.  If you would like to discuss this case further, please feel free to contact her directly at [email protected].