Brokerage fined $5K for cutting nominee out of the loop regarding broker’s financial improprieties

A B.C. brokerage has been fined $5,000 for not telling its nominee, the brokerage’s representative to the regulator, about a former employee pocketing more than $46,000 in premium from 43 clients between 2021 and 2022 without placing coverage for them.

Only when the former employee was terminated did Maxxam Insurance Services senior staff tell the nominee to notify the regulator. Until then, the nominee was led to believe the agency’s owner and senior staff thought the former employee’s behaviour was simply ‘horribly disorganized’ and they could ‘get him back on track.’

The Insurance Council of B.C., the province’s broker regulator, found the owner and senior staff knew the suspect activity was occurring, but nevertheless re-assigned the problematic broker to public-facing positions with the brokerage.

“Council believes fining the agency $5,000 is an appropriate sanction for disregarding the nominee’s supervisory authority and excluding her from the agency’s internal discussions,” the broker regulator wrote in its disciplinary decision, released in October. “The agency operated without sufficient oversight and missed several opportunities to involve the nominee in their decisions, instead maintaining an exclusionary decision-making culture that marginalized her role.”

The council did not issue a penalty against the brokerage’s nominee.

A nominee in an insurance brokerage is responsible to the regulator for the firm’s insurance activities. Their role includes ensuring the brokerage and its agents are properly supervised, operate within legal and ethical standards, and comply with all regulations, such as maintaining proper insurance coverage and fulfilling mandatory notifications.

Maxxam Insurance Services is located in Langford, B.C., and owns another location in Burnaby, B.C. Bill Rai owns the brokerage, and Emily Beaulieu is the nominee of the brokerage in Langford. Beaulieu was given a non-supervisory role.

On Jan. 31, 2023, the regulator received a complaint from Beaulieu about allegations that one of the agency’s broker’s, who license was cancelled at that time, failed to remit client premiums owed to the agency and distributed fraudulent insurance certificates to clients.

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Beaulieu was initially unaware of the brokerage’s multiple meetings with the former broker in 2021 and 2022 to address issues concerning the remittance of client payments. She only became aware of the former broker’s actions when she was advised by senior staff in 2023 to file a complaint to the regulator.

Unaware of the true extent of the fraudulent activity, senior staff ordered the former broker to undertake remedial measures to correct what they characterized as ‘disorganized’ behaviour.

In December 2021, for example, Rai, the manager, and representatives of the agency’s accounting department held a meeting with the former broker when they noticed he did not remit $10,000 worth of premiums to the agency. The former broker then made payments to the agency through cash, visa and cheque to repay the money.

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“In the Committee meeting, Rai and the manager stated former broker did not show any intent of misappropriating client payments, instead the agency genuinely believed his ability to manage remittances to the agency was poor,” the regulator’s decision states.

But then, in November 2022, Rai and the manager met with the former broker again to discuss his outstanding accounts receivable. The agency did not involve the nominee in the meeting and did not bring the outstanding accounts receivable issues to her attention, since Rai was attempting to address it.

“At the meeting, the former broker admitted that he had accepted payments from clients through Interac e-Transfer to his own bank account and failed to remit these payments to the agency,” the regulator’s decision states. “As a result, the agency decided to temporarily suspend the former [broker]. While he was suspended, he repaid the agency the outstanding money he had collected for the client premiums.”

When he returned from his suspension on Dec. 1, 2022, the brokerage’s owner reinstated him as a producer, where he acted as a commission-only agent who was responsible for collecting client premiums, handling applications and completing paperwork.

In early January 2023, the brokerage terminated the former broker after discovering he continued to collect client payments and failed to remit them to the Agency.

“A few weeks later, Rai encountered the former [broker] at a restaurant, where the former [broker] apologized for his actions and requested a second chance,” the Council’s decision reads. “Rai rehired him as a referral-based agent, where the former [broker] was paid to solicit clients and was not allowed to handle payments.”

Days after the former broker was rehired, on Jan. 19, 2023, the brokerage terminated his employment after a client asked the brokerage for a copy of their insurance policy, for which they had paid the former broker in cash.

Only at this time was the nominee requested to contact the regulator to lodge a complaint.

“Council felt formal discipline was necessary to emphasize to the public that the conduct of the agency is concerning and reprehensible,” the broker regulator found.

“Although the agency took steps to change the former [broker’s] role to one with fewer responsibilities, the agency permitted him to continue to represent the agency and deal with the public. The agency did not realize the potential impact on clients who were unaware of the associated risks in dealing with the former [broker].

“The agency had several opportunities to report the former [broker’s] misconduct to Council but chose not to after assuming senior management had dealt with the issue, even after recurring signs of misconduct.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.