Ontario’s top court resolves issue of “trust” between broker and insurer

The Ontario Court of Appeal has ruled an insurance broker must pay back $75,510 it had unilaterally collected to renew expiring insurance policies, noting the broker had changed the insurer upon renewal and had paid the new insurer one month’s worth of premium that it had collected on behalf of the original insurer.
The Appeal Court found s. 402 of the Insurance Act, which deals with an agent holding premium in trust for an insurer, applied.
M.B. Kouri Insurance Brokers Ltd. had a clientele of approximately 175 campground operators. Ecclesiastical Insurance Office Public Limited Company provided insurance to the campgrounds.
Ecclesiastical provided the coverage through its broker, R.L. Gougeon Ltd., which had a sub-broker agreement with Kouri. Only Gougeon, not Kouri, had authority to bind Ecclesiastical to an insurance contract.
The campgrounds’ common insurance coverage expired on May 31, 2004. A month before this date, Kouri inquired through Gougeon if Ecclesiastical would renew coverage. Ecclesiastical provided no response.
Three weeks before coverage expiry, on May 10, 2004, Kouri unilaterally issued certificates of renewal of insurance by Ecclesiastical, and invoiced the campgrounds for premium covering the period of May 2004 to May 2005. It did not inform Gougeon or Ecclesiastical that it had done this.
On May 17, Ecclesiastical notified Gougeon it would extend coverage for 30 days, covering June 2004, while it considered whether or not it would renew the program.
A few days before the end of June 2004. Kouri had not yet heard whether Ecclesiastical would renew coverage. It therefore placed the business with Grain Insurance and Guarantee Company and sent to Grain the monies it had received for the coverage between the months of May 2004 and May 2005.
On July 7, Kouri advised Gougeon it had placed all of the campground business with another insurer.
As a result, Ecclesiastical sought the premium money Kouri had collected for the 30-day extended coverage Ecclesiastical had offered in June.
A trial judge found that when Ecclesiastical extended its coverage for 30 days, it did not indicate there would be a premium for the extension. The judge concluded the insurer had offered the coverage extension on a no-premium basis as a means to make up for failing to deal with the renewal in a timely manner.
But the Ontario Court of Appeal found the trial judge erred by not considering s. 402 of the Insurance Act, which deals with an agent holding premium in trust for an insurer.
The Appeal Court found that for the transitional period of June 2004, Kouri had been deemed to have collected the money “in trust” for Ecclesiastical. It therefore ordered Kouri to pay to Ecclesiastical the $75,510 it had collected for that period.
“I add the observation that s. 402 [of the Insurance Act] applies to an agent or broker who does nothing more than act ‘in negotiating’ a contract of insurance,” Ontario Court of Appeal Justice Russell Juriansz wrote for the court.