When a regulator calls your insurance company or brokerage to request information, what’s the first thing you should do?
Call your lawyer, says Arthur Hamilton, who works with the litigation dispute resolution group at Dentons Canada LLP.
That’s because the world of insurance regulation is now complex. Seemingly innocuous and/or straightforward questions from the regulator could carry hidden assumptions or touch on different areas of law — such as privacy law, for example. For that reason, an unconsidered answer could come back to haunt the insurer or the broker later.
Hamilton raised the topic at a media roundtable held at Dentons Canada LLP in Toronto on Nov. 20. Several of Dentons’s legal experts discussed hot topics in insurance law, including the legal exposures related to using artificial intelligence in insurance, national licensing for adjusters, ideas for how to reduce the burden of regulatory compliance, the impact of language laws on growth strategy of insurers or brokerages that want to start up offices in Quebec, and more.
In his presentation, Hamilton cited an example in which a regulator reached out to a company to ask how many of its employees were working from home. This happened during the pandemic, when governments issued public health orders requiring all workers in non-essential services to work from home to avoid spreading COVID. (Insurance was designated as an essential service.)
The answer the company should have given, Hamilton said, was: “’We have people who do their work in a virtual office from home.” Instead, the company responded: “67.”
“Well, that started a giant investigation, because you’re not allowed to work from home [due to licensing regulations around supervision],” Hamilton said. The regulator considered working from home to be the same thing as doing ‘unsupervised’ work. Meanwhile, the company maintained its employees were properly licensed and supervised while working in a digital office environment under the auspices of the company’s home office.
“The fact that they were at their home, working in their virtual office that’s fully controlled by the [company’s] home office environment, didn’t matter [to the regulator],” Hamilton said. “Five years and three court levels — and experts, and everything else — later, and we’re still fighting. And no one agrees on what working from home means.”
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In other situations, Hamilton cautioned, the regulator may be asking for information that touches on regulations or laws in different areas of regulatory jurisdiction.
“Even if the regulator is completely on the level about what they’re trying to investigate or look at, sometimes their request can ask you to do something that, as an insurer or an intermediary, will get you in trouble — like, on the privacy front, or a whole myriad of other issues.”
Since the insurer’s or broker’s counsel is wise to these regulatory issues, it’s best that anyone taking a question from the regulator take that request to the company executives or broker principals, who can then seek legal advice, Hamilton recommends. The lawyers can then engage with the regulators to further clarify the purpose of the request and how to comply with it.
“You don’t want to sound hypersensitive, but you can’t be too careful,” Hamilton said. “Sometimes the question that gets asked is the wrong question, and you have to politely go back [to the regulator] and say, ‘I don’t think you meant to ask that question. What you meant was, ‘Is anybody unsupervised and doing something they shouldn’t be doing?’” The answer to that is no.
“And then let [the regulator] come back and say, ‘We didn’t ask that. We think anyone working from home is unsupervised. How many people work from home?’”
To which counsel can come back and clarify, ‘No, I think you’re asking, ‘Were they unsupervised?’”
This kind of engagement between counsel and the regulator is important, Hamilton said, because penalties against insurers and brokerages can be harsh. Plus, they can cause reputational damage if the public perceives the company did something wrong.
Because of the high stakes, it’s a good idea to have counsel engage with the regulator from the outset, Hamilton recommends.
Feature image courtesy of iStock.com/Nastco
