Inactive Alberta brokerage ordered to pay $6K for failing to remit client funds to MGA

Alberta-based NIB Insurance Group Ltd., now an inactive brokerage, has been ordered to pay $6,000 in civil penalties for failing to remit client premiums to an MGA, and for selling a policy to a client while it was no longer licensed to do business.

The designated representative of NIB, Kenneth Molland (whose broker licence was terminated in October 2018), claimed the missing payment simply fell through the cracks during a transitional period when NIB’s book of business had been acquired by another brokerage.

But the province’s broker regulator, the Alberta Insurance Council (AIC), citing an email chain supplied by the (unnamed) brokerage that had bought the book of business. AIC observed that the MGA made about 10 requests inquiring about payment between mid-October 2018 and early January 2020. Six of them met with no response.

“The council noted that several demands for payment were made by the MGA, with many of the demands going without a response,” states the council’s decision, dated Apr. 8, 2021. “The client provided a copy of the cheque to the MGA as proof that payment of the insurance premiums was made to the agency [NIB]. However, the agency never remitted these funds. As such, the council finds that it is more likely than not that the misappropriation of the insurance premium was done knowingly, and with intention.”

Council added that the whereabouts of the insurance premiums remain unknown.

The complaint to council stemmed from the agency that purchased NIB’s book of business (the agency is cited in council’s decision as “H.I.I.”).

The agency passed along a number of records to the council for investigation, including a fax to the MGA from the client dated Oct. 18, 2019, which stated: “Attached is the cheque copy we received from the bank. I am confused though as the amount we paid is more than what was on the invoice. Please rectify. We received no invoice from NIB, just a call todays [sic] before it was due and a courier was sent on November 30th to get the cheque. We were not pleased. […]”

When asked to explain what happened, Molland told the council the issue had to do with the delayed transfer of a book of business from NIB to the new brokerage, H.I.I.

“The client was a recurring client of NIB Insurance,” Molland informed council, as cited in the council’s decision. “NIB sold its book of business to H.I.I., and I came to be employed at H.I.I. in late 2018.

“There were transitional issues, but all renewals would have to be processed either for NIB or H.I.I. – to keep the business going and service the clientele. H.I.I never dealt with the necessary paperwork between itself and the MGA (and a number of my other insurers), therefore there was a difficulty having them process the renewal, even though, effectively, this was now an H.I.I client.

“The client forwarded payment to NIB and my accounting deposited it in NIB. The policy was always in place. Once I realized what happened, once it was brought to my attention in 2019, H.I.I, through me but with H.I.I.’s agreement, agreed to pay the missing payment at the time of the following years’ renewal – effectively the premium X 2.

“H.I.I. was then going to deduct that money off of what they still owed NIB in the NIB/H.I.I. transaction. I was then terminated from H.I.I. in early January 2020 and cannot tell the tale beyond that time.”

In response, council noted that regulations explicitly state that when a client pays a brokerage with funds to be remitted to an insurer (in this case, an MGA), those funds are to be held in trust. If they are not paid within 30 days of a written demand for payment from the insurer (or the MGA), then the funds are deemed to have been used for an improper purpose.

“The client provided a copy of the cheque to the MGA as proof that payment of the insurance premiums was made to [NIB],” council ruled in its decision. “However, the agency never remitted these funds. As such, the council finds that it is more likely than not that the misappropriation of the insurance premium was done knowingly, and with intention.”

For this, the council levied a $5,000 civil penalty against NIB.

Council issued an additional $1,000 civil penalty against NIB for selling the policy to the client on Oct. 26, 2018 (with an effective date of Dec. 1, 2018), during a time when NIB did not have a valid certificate of authority. The agency’s certificate of authority expired on Oct. 15, 2018.

In explaining what happened, Molland again cited delays arising from the transition of the book of business from one brokerage to another.

He said he was to be licensed through H.I.I. before his licensing expired at NIB. “It didn’t happen…[There were] delays (unknown to me) in H.I.I advising AIC of me now working there and issuing a letter to AIC, leading to a licence being issued for me.”

Council was unmoved by the explanation, simply reiterating that the the policy sale was completed after the agency’s certificates of authority had expired.