An Ontario court has denied an insurance brokerage’s request to prohibit an insurer from contacting the broker’s clients after it decided to stop selling the insurer’s products.
According to a decision from the Ontario Superior Court of Justice, in 2014, an insurance broker, BrokerLink Inc., agreed to sell insurance products from Commonwell Mutual Insurance Group — a deal that came to an end on Jan. 1, after the brokerage informed Commonwell that it was terminating the agreement last September.
After discovering that Commonwell was contacting policyholders, advising them that their arrangement was ending, and offering them the opportunity to stay with the insurer, BrokerLink asked the court to intervene and grant an injunction prohibiting those communications.
Among other things, the brokerage argued that these efforts breached the terms of their agreement, which, it said, prohibits the insurer from contacting the clients.
“It is BrokerLink’s position that it makes the introduction of the customer to Commonwell and that customers that it introduces to Commonwell were its customers,” the court said. “As such, the agreement is designed to preserve the customer as BrokerLink’s and also prevents Commonwell from having any communications with the customer after termination where it seeks to retain the customer.”
However, the insurer argued that the agreement doesn’t bar it from contacting the policyholders — and that while there is a clause indicating that it’s the broker’s responsibility to advise policyholders of the termination of the brokerage agreement, there’s nothing that specifically restricts the insurer from doing so.
It also argued that this would be inconsistent with insurance regulation on the fair treatment of customers set out in the rules and guidance of the Financial Services Regulatory Authority and the Canadian Council of Insurance Regulators, which requires both brokers and insurers to provide clear, accurate disclosure to clients.
“Insurers are expected to disclose information on any contractual changes occurring during the lifecycle of the contract to the policyholder,” the court noted.
Ultimately, the court ruled that both the insurer and the broker have “arguable positions as to the proper interpretation of the agreement and whether Commonwell was entitled to communicate with customers in the way that it did” — and, as a result, it found that BrokerLink established that there is a “serious issue to be tried” in this dispute.
However, the court also found that the broker failed to establish “a strong prima facie case that the agreement prohibits Commonwell from having had these communications.”
“Both positions are arguable and ultimately, the interpretation of the agreement may depend upon the surrounding circumstances proven, which may include the regulatory context which may require Commonwell to communicate with its customers regarding any important matters concerning their policies,” it said.
The court denied the broker’s request for an injunction, saying that it failed to establish that it will “suffer irreparable harm” if the court doesn’t take action.
While BrokerLink argued that it will suffer harm due to lost business, damaged customer relationships and reputational harm, the court found that it failed to demonstrate that the insurers’ communications had any significant impact on its overall business — and it rejected its claims about reputational harm, saying that its “evidence is highly speculative, conclusory, and insufficiently particularized or supported.”
The court also noted that an injunction that prevents Commonwell from communicating with policyholders could undermine its ability to meet its regulatory obligations, and there’s a risk that policyholders “will unwittingly lose ownership rights and the ability to make an informed decision about which coverage is best for them.”
Ultimately, it denied the motion for an injunction.