Canadian Western Bank and seven other Canadian banks have lost their fight to be free of the Alberta Insurance Council’s regulatory powers when selling insurance products they are permitted to sell under the federal Bank Act and the related insurance business regulations.

The case is similar case to one in B.C. two years ago — Bank of Nova Scotia v. British Columbia (Superintendent of Financial Institutions). But in the Alberta decision — Canadian Western Bank v. Alberta released Jan. 14 — the banks lost.

With two of the country’s appeal courts (the Alberta Court of Appeal and the B.C. Court of Appeal) making major decisions that are odds with each other, the Alberta decision will no doubt be appealed by the banks to the Supreme Court of Canada.

One of the S.C.C.’s principal roles is to settle such differences in legal interpretation. The banks are expected to want to pursue their appeal of the Alberta decision based on the B.C. appeal court decision, which went in their favour.

In Alberta, the banks sought a declaration that promoting insurance products by them and their agents should be considered “banking” under the Canadian constitution, and served a “Notice of Constitutional Question” on the government of Alberta.

The province went to bat for its regulatory power over insurance, as set out in the Constitution Act, 1867, on behalf of the Alberta Insurance Council. The council, along with the Canadian Health and Life Insurance Association were intervenors in the case, arguing against the banks.

At issue were changes to the Bank Act that came into force in 1992, allowing the banks to promote “certain types of insurance on a constrained basis,” notes Justice Elizabeth McFadyen in her decision. That includes bank creditor insurance related to loss of employment, loss of life, mortgages, and disability.

In Alberta, the Insurance Act was amended to bring insurance promoted by the banks under the provincial scope of market conduct regulation, including product disclosure and ensuring bank employees are knowledgeable about the products they promote.

Despite this regulation, the banks argued in the Alberta courts that their insurance promotion is a “core” banking activity. They argued that since banking is regulated federally, they should get “interjurisdictional immunity” from provincial regulation.

Justice Hunt did not agree that insurance promotion is a core banking activity, and stated in her decision that she “respectfully disagrees” with the B.C. Appeal Court decision. Even if insurance is a significant part of the bank’s overall loan portfolio, she noted that only insurance of high-ratio mortgages is mandatory, and that is facilitated by the Canada Housing and Mortgage Corp. The other types of insurance are optional.

“The fact that the banks, themselves, have declined [to make this insurance mandatory] suggests that they do not consider this insurance essential,” Hunt said.

She also noted that the consumer can cancel the insurance at any time, and the insurance is not offered until after the underlying arrangement, such as a mortgage, is finalized. Even if the insurance is triggered by default, writes Hunt, the banks have other remedies, including property foreclosure.

The banks also argued in the appeal court that since they don’t require a licence under the federal regime, provincial law requiring them to obtain a “Certificate of Authority” is interfering with what Parliament intended. Second, they argued that the federal regime is comprehensive, reflecting parliament’s intention to create a uniform, national system.

The Alberta Court of Appeal disagreed with both arguments. “There is nothing in the Bank Act or the insurance business regulations indicating a Parliamentary intent that banks should be able to promote insurance without complying with otherwise valid provincial laws. The legislation does not so expressly say. The mere existence of federal legislation does not give rise to any implication that Parliament intended to exclude the applicability of valid provincial laws on the same subject.”