Aviva’s Project Bumper: Car repairers lose challenge to FSRA’s cease and desist order

Correction and Clarification Notice: The following article has been updated to correct errors contained in the originally published version of this story. First and foremost, FSCO’s proposed cease and desist order was not in effect at the time the Wardas had challenged the order, as the original article incorrectly implied. Under FSCO’s procedural rules, cease and desist orders are not in effect when they are subject to a challenge, and it was an error to imply otherwise. The headline and two paragraphs in the article have been corrected accordingly. Second, the LAT decision states the “Wardas were employees of McLaren at the time of Aviva’s investigation.” It does not say they are currently employees of McLarens Collision, as the original version of the article incorrectly implied. Finally,  Michael Wetzel was not an employee of McClaren, as originally stated. The original version of the article made clear Aviva’s allegations against the Wardas had not been proven in court, and Canadian Underwriter never intended to imply otherwise. Canadian Underwriter regrets and apologizes for any distress the inaccuracies/misunderstandings contained in the original article may have caused. 

Two auto repair employees lost their tribunal challenge of a regulator’s proposed cease-and-desist order against them, an order that followed a well-publicized Aviva Canada sting operation.

Aviva investigated possible insurance fraud activity in the auto repair sector in 2017. As part of the investigation, nicknamed Project Bumper, Aviva arranged to have two cars damaged in a way that simulated a collision. Damages to each car were appraised by a third-party appraiser for the purposes of Aviva’s investigation.

The two cars were equipped with concealed video cameras. After staged collisions, the two cars were towed to McLaren Collision, where Aviva alleged videos from both cars showed additional damages caused to the two cars by Fady Rony Warda and Rony Amanuel Warda. The LAT decision indicates the Wardas were employees of McLaren at the time of Aviva’s investigation. Aviva claims McLaren unfairly and deceptively charged the insurer for repairing the additional damage done to the two cars.

Aviva’s allegations against McLarens and the Wardas have not been tested in court. The Wardas are defending themselves in court against the allegations.

On the basis of Aviva’s investigation, publicized by current affairs program W5, Ontario’s financial services regulator proposed a cease-and-desist order against McLaren on Mar. 20, 2020.

FSCO’s proposed cease and desist order sought to prevent McLaren from engaging in the business of insurance for a period of one year. It also called for the Wardas to cease and desist immediately from engaging in the business of insurance for a period of six months. Basically, the proposed order called for McLaren and the Wardas to stop doing any repair business that would be paid for by insurance.

The Wardas challenged the regulator’s order at the Financial Services Tribunal, saying it amounted to an abuse of process. In particular, they argued three things:

• Aviva’s surreptitious use of video cameras in its sting operation violated the Criminal Code.
• The cease-and-desist order issued by the Financial Services Regulatory Authority (FSRA) was tainted by the appearance of a conflict, since two FSRA executives were former Aviva executives, including Tim Bzowey and Gordon Rasbach, the author of Project Bumper and Aviva’s vice president of property claims and fraud management at the time.
• FSRA’s CEO proposed the order outside of a two-year limitation period.

The tribunal rejected all three arguments.

On the first point, the tribunal decision noted the audio and video recordings from the cars were not examples of intercepted private communications, and thus the Criminal Code did not apply.

“The courts have repeatedly recognized that those engaged in commercial activities within a regulated industry are subject to a reduced expectation of privacy in the context of regulatory investigations sanctioned under enabling legislation,” the tribunal wrote in a decision released Wednesday.

“In this proceeding, what occurred to the two cars after being brought for repair resulted in the insurer paying for more than the damage created by the collision. FSRA has the authority to regulate this activity and its impact on the business of insurance and the applicants have a diminished expectation of privacy in this context.”

On the second point, the tribunal noted the cease-and-desist order was drafted by FSRA’s legal counsel, who “did not discuss the [order] with or take instructions from either Rasbach or [former Aviva Canada exec Tim] Bzowey,” who became FSRA’s executive vice president of auto/insurance products in January 2019.

Moreover, approval of the order came from Elissa Sinha, the director of the FSRA’s litigation and enforcement department, who also did not discuss the order with or take instructions from Rasbach or Bzowey.

The fact that the matter of appearance of bias was being adjudicated by the tribunal suggested Rasbach and Bzowey were not unfairly manipulating the Wardas’ right to be heard, the tribunal concluded.

Finally, on the third point, the two-year limitation period started when FSRA’s CEO first became aware of the matter, the tribunal ruled. Although the Wardas produced emails showing FSRA’s internal staff became aware of the issue after Aviva drew their attention to W5’s coverage of the sting operation, the emails did not show the CEO became aware of these facts outside of the two-year limitation period, according to the LAT.

 

Feature photo courtesy of iStock.com/polarica