Regulation (January 01, 2010)

BANKS INVOLVED IN INSURANCE ARE SUBJECT TO PROVINCIAL INSURANCE LAWS: ONTARIO COURT

Ontario banks that promote or accept applications for insurance products are subject to the province’s Insurance Act, Ontario’s Superior Court of Justice has ruled.

In Royal Bank of Canada v. Salih and Mirsada Mujagic, Salih and Mirsada Mujagic made a number of allegations, including “negligence misrepresentations as to the nature and quality of the insurance promoted at the [RBC’s] branch.”

RBC did not fully respond to the allegations. Instead, the bank relied on the law governing mortgages and the federal regulation of banks, essentially taking the position that the provincial Insurance Act did not have jurisdiction in this case and, therefore, the case should be thrown out of the Ontario court.

Ontario Superior Court Justice David Crane relied upon the Supreme Court of Canada’s 2007 decision in Canadian Western Bank v. Alberta in finding that the case should be tried under Ontario’s Insurance Act.

In Canadian Western Bank, the Supreme Court of Canada ruled that promoting insurance is not a core function of banking, so provincial legislation that regulates insurance agents also applies to federally regulated banks when it comes to promoting creditors’ insurance.