The B.C. Court of Appeal has decided against the Clarica Life Insurance Co., formerly Mutual Life Assurance Company of Canada, holding it liable for thefts by former agents.

In the first case involving Henry and Edna Theissen, the trial judge assigned the risk to the insurance company — who had sponsored the representative’s licence and entered into a contract with him to sell only their life insurance products and such other non-competing financial products as they authorized and he was licensed to sell.

The trial judge held Clarica responsible even though she also found its representative, Carey Dennis, to be an independent contractor. As guidance she relied on a Supreme Court decision that essentially states that a company using an independent contractor as a sales rep must bear the risk.

The Appeal Court re-examined this question. “The risks to members of the public dealing with authorized representatives whose livelihood depends on their relationship with one insurance company are significantly greater than those she identified. The loyalty of such a representative is to the insurance company he represents, not to the third party who seeks to invest savings in an accumulation annuity offered for sale by that insurance company and seeks out its authorized representative for that purpose.”

In 1991, the Thiessens moved and were advised by Clarica Life that their accounts had been transferred to a community close to them and that Carey Dennis would be their agent.
They went to see Dennis at the Clarica Life office to get advice on how to invest the proceeds of sale of their home. The transaction took place in the office. (There was a Mutual Group sign on the outside of the building and another on the front door. There was a Mutual Group sign on the office door. There were, as well, Mutual Group logos on the door and on the wall inside the reception area. The Mutual Group logo and firm name were displayed on Dennis’ business card.) So, from the Thiessens’ perspective, Dennis was the authorized rep of Clarica Life and they had no idea of his arrangements with the insurer with whom they had dealt for many years.

The Appeal Court disagreed with the trial judge’s decision that Clarica was vicarious liable and preferred to make a stronger link between agent and company. “The customer was vulnerable for a variety of reasons, including the distribution system Clarica Life set up for the sale of its accumulation annuities, the powers it gave to its authorized representative in practice with regard to those annuities, the trust its referral policy and approved advertising encouraged its customers to repose in its authorized representatives, the lack of any effort to supervise the performance of those representatives, and the lack of notice to customers of any limitation on their authority to bind Clarica Life.”

Finally, the Appeal Court referred to one of its own earlier decisions, Keddie v. Canada Life Assurance Co.,when it stated that “it becomes clear that the customer interacts with the insurance company only through the broker. While there is nothing wrong with such a procedure per se, it is at least arguable that the law should not allow an insurance company to enjoy the gains from his economic activity without bearing some responsibility for misconduct committed in the course of carrying it out.”

In another case in which B.C. resident Nanna Wilson also brought a suit against Clarica for theft by Dennis, the Court of Appeal looked at the issue of negligence in hiring.

“Negligence in hiring may not be the best distributor of the risk of malfeasance by insurance agents, given the uncertainty of result from case to case. However as this case was presented, we can find no error on the part of the trial judge that would justify this Court’s setting aside his order that Clarica compensate Ms. Wilson for her loss on that basis.”