Creditor Insurance Not Subject of Provincial Regulation

On January 20, 2002, the B.C. Court of Appeal in The Bank of Nova Scotia and Optima Communications Canada Inc. v. Superintendent of Financial Institutions et al., reversed a trial level decision, which had held that the telemarketing of creditor insurance by the bank was part of the business of insurance, not the business of banking and, therefore, was subject to provincial regulation. The trial judge had held that the unlicensed telemarketing of creditor insurance to bank customers was not permitted by provincial law.

The court held that the bank’s creditor insurance marketing activities were constitutionally insulated from provincial regulation. The court found that the promotion of creditor insurance provides security to the bank by enhancing its ability to receive payment on loans. In a significant ruling, the court held that the taking of security is both a core aspect of the federal legislative power over banking and a vital part of a banking enterprise. The court further held that, as a form of security, creditor insurance was within the core of the federal banking power. The court noted that a provincial licensing regime, which would allow the province to say who gets a licence and under what conditions, and which could prevent the bank from obtaining security in a certain way, would affect a vital part of a federal enterprise. As a result, based on the doctrine of interjurisdictional immunity, the provincial legislation was constitutionally inapplicable to the bank’s creditor insurance marketing activities and to its marketing agent. The court also held that, apart from the constitutional immunity, the bank, its employees and agents enjoyed the privilege of an exemption under the provincial legislation.

The bank’s legal team was instructed by Michael Davenport, assistant general counsel, and included Geoffrey Cowper, Q.C., Stanley Martin and Ted Purdy, with financial services regulatory assistance from Robert McDowell and Robert Elliott of all Fasken Martineau DuMoulin LLP. Sarah Macdonald of the Ministry of the Attorney General acted for the Superintendent of Financial Institutions, Financial Institutions Commission and the Attorney General of British Columbia.

The intervenors were the Canadian Bankers Association, represented by Neil Finkelstein, Jeff Galway and Charlotte Kanya-Forstner of Blake, Cassels & Graydon LLP; the Insurance Council of British Columbia represented by David McKnight of Alexander Holburn Beaudin & Lang; and the Canadian Life and Health Insurance Association represented by Bryan Baynham, Q.C., of Harper Grey Easton.

The Ministry of the Attorney General has indicted its intention to seek leave to appeal the decision to the S.C.C.