How this broker’s exclusive insurer deal went pear-shaped

A British Columbia broker that got acquired by a unit of The Co-operators Group Ltd. is in breach of contract with RSA Canada-owned Canadian Northern Shield, an Ontario court has ruled.

In 2008, Vancity Insurance Services Ltd. was a brokerage placing home insurance with several carriers, including Canadian Northern Shield. The brokerage “conceived and initiated the concept of only dealing with and selling product from one insurer rather than a number of insurers with a view to improving efficiencies and increasing growth, retention, and profit. It was an arrangement that was unique in the industry at the time,” Judge Laurence Pattillo of the Ontario Superior Court of Justice wrote in Cdn. Northern Shield v. 2421593 Canadian Inc., released this past Tuesday.

The numbered company is the new name of Vancity Insurance, which was sued by Canadian Northern Shield Insurance Company and its parent, Royal and Sun Alliance Insurance Company of Canada, for $4.4 million.

At the time, Vancity Insurance was owned by Vancouver City Savings Credit Union.

In February, 2008, Vancity Insurance prepared a “Request for Information” which it sent to insurers. Vancity Insurance was looking for an exclusive carrier with whom Vancity Insurance would place home insurance.

This led to meetings between Vancity Insurance management and officials with Canadian Northern Shield – which has since been acquired by RSA.

After a meeting June 15, 2008, Vancity Insurance decided to select Canadian Northern Shield its exclusive home insurer and to enter negotiations.

More meetings were held in July and September of 2008. Meanwhile, both Sovereign General (a subsidiary of The Co-operators Group Ltd.) and ING (now Intact) cancelled their agreements with Vancity Insurance. This meant that at some point in 2008-09 time frame, Sovereign General and ING would stop accepting business from Vancity Insurance.

After a Sept. 11, 2008 meeting, an executive with Canadian Northern Shield agreed to prepare a draft of a written agreement making Canadian Northern Shield the only carrier with which Vancity Insurance would place home insurance. A draft agreement was sent in December, 2008.  Over the next several weeks, emails were exchanged between executives with Vancity Insurance and Canadian Northern Shield.

What threw a wrench into the exclusive arrangement was the acquisition of Vancity Insurance by a subsidiary of The Co-operators, a competitor to Canadian Northern Shield. The acquisition closed in September, 2009. Shortly thereafter, The Co-operators advised Canadian Northern Shield that the agreement with Vancity Insurance was terminated.

Canadian Northern Shield sued for breach of contract.

In its defence, Vancity Insurance says it never reached a legally binding agreement with Canadian Northern Shield.

Judge Pattillo disagreed, ruling that Vancity Insurance did in fact reach and agreement with Canadian Northern Shield “by at the latest September 11, 2008.”

“There is no evidence that the parties ever intended or agreed that the agreement would not be binding until a formal written contract was signed,” he wrote. While that might have been the “initial intent” of the parties, the cancellation by Sovereign General of its agreement in the summer of 2008 “forced the parties” into speeding up the timeline for moving Vancity Insurance customers who were not already with Canadian Northern Shield over to Canadian Northern Shield.

“My sense from the evidence is that completion of the written contract suffered as a result. But that did not matter because the parties never agreed that there was no binding agreement until a written contract was signed,” wrote Judge Pattillo.

He cited case history, including United Gulf Developments Ltd. v. Iskandar, released in 2008 by the Nova Scotia Court of Appeal. In United Gulf, judge Thomas Cromwell wrote that there is an enforceable contract if two parties agree ‘on all of the essential terms” of a contract and “it is their intention that their agreement be binding.”

The Vancity case has been in Ontario court for a few years.

Originally the lawsuit against both The Co-operators and Vancity was dismissed in 2016 by Ontario Superior Court of Justice Judge Frank Newbould. Canadian Northern Shield was partly successful on appeal.

In its ruling in Canadian Northern Shield Insurance Company v. 2421593 Canada Inc., released in 2017, the Court of Appeal for Ontario upheld Newbould’s verdict in favour of the The Co-operators but ordered the lawsuit against Vancity to trial.

The Co-operators was originally a defendant because Canadian Northern Shield alleged that as the buyer of Vancity Insurance, The Co-operators “induced a breach of the agreement” on the part of Vancity Insurance.

Judge Newbould disagreed. In discussions in early 2009 leading up to the purchase of Vancity by The Co-operators, officials with The Co-operaotrs learned about  a “strategy to roll over all business from their other markets” to Canadian Northern Shield. But The Co-operators was advised by Vancity that there was no binding agreement in place.

In Judge Pattillo’s decision released Nov. 13, 2018 he directed Canadian Northern Shield recalculate its damages and submit to Vancity Insurance for review.

In coming up with its estimated loss of $4.4 million, Canadian Northern Shield estimated its loss ratio would have been 49% in the first year and 49.7% in the second year. Canadian Northern Shield estimated the premiums it would have collected from September 1, 2009 to August 31, and the claims it would have incurred. It also factored in operating costs and investment income.

Judge Pattillo instructed Canadian Northern Shield to use a loss ratio of 52% when calculating its estimated claims.