In response to the continued protests and civil unrest in Canada, on February 14th, 2022, the Government of Canada declared (the Declaration) a public order emergency under the Emergencies Act (Canada) (the Emergencies Act). In connection with this declaration, the Federal Government introduced the Emergency Measures Regulations: SOR/2022-21 (the Regulations) and Emergency Economic Measures Order: SOR/2022-22 (the Order), which, among other items, created temporary new rules and restrictions applicable to insurers conducting insurance business in Canada.
The Declaration is effective for an initial period of 30 days and must be confirmed by both the House of Commons and the Senate. Any extension to the Declaration’s initial period must also be confirmed by the House of Commons and the Senate.
The restrictions below apply to Canadian insurers and foreign insurers operating in Canada on a branch basis (collectively, Insurers), among other types of entities. A summary of the restrictions and their implications applicable to those conducting insurance business in Canada is as follows:
1. Duty to cease dealings
For the duration of the Declaration, Insurers must cease the following activities:
- Dealing in any property, wherever situated, that is owned, held or controlled, directly or indirectly, by a designated person or by a person acting on behalf of, or at the direction of, that designated person (a “designated person” is defined in the Order as any individual or entity engaged, directly or indirectly, in the activities prohibited by the Order or the Regulations, including certain public assemblies that may reasonably be expected to lead to a breach of the peace, where certain criteria are met);
- Facilitating any transaction related to a dealing referred to directly above;
- Making available any property, including funds or virtual currency, to or for the benefit of a designated person or to a person acting on behalf of or at the direction of a designated person; or
- Providing any financial or related services to or for the benefit of any designated person or acquire any such services from or for the benefit of any such person or entity. However, it is important to note that this does not apply in respect of any insurance policy which was valid prior to the coming in force of the Order, other than an insurance policy for any vehicle being used in a “public assembly” prohibited in the Regulations.
2. Duty to determine:
Insurers must also determine, on a continuing basis, whether they are in possession or control of property that is owned, held or controlled by or on behalf of a designated person. The Order does not include a definition for the term “on a continuing basis”.
3. Duty to disclose:
Insurers are required to disclose without delay to the Commissioner of the Royal Canadian Mounted Police or to the Director of the Canadian Security Intelligence Service the existence of property in their possession or control that they have reason to believe is owned, held or controlled by, or on behalf of, a designated person. In addition, Insurers must disclose to the above noted persons any information about a transaction or proposed transaction in respect of property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a designated person.
Impact on Insurers
Insurers must comply with the Order immediately. Insurers must not issue or bind the following types of insurance policies to designated persons on or after February 15, 2022:
- New insurance policies (whether P&C or life) issued on or after February 15, 2022; and
- Insurance policies for vehicles used in a prohibited public assembly, i.e., automobile insurance policies and any other policies that extend coverage to automobiles, such as commercial general liability policies with fleet coverage.
In addition and as noted above, Insurers’ duties to cease making any property available to designated persons also means that insurers are prohibited from paying out claims to such persons.
However, the duty to cease provision of insurance products and services does not apply in respect of validly issued insurance policies prior to the coming in force of the Order (February 15, 2022). The Order provides that no proceedings under the Emergencies Act nor any civil proceedings may be brought against an entity, such as an insurer, for its compliance with the Order. As such, Insurers will not face legal challenges for complying with their obligations under the Emergencies Act.
Once a determination is made that an individual is a designated person, Insurers must take the necessary steps to populate their sanctions screening tools to ensure that they have sufficient mechanisms and procedures in place to identify designated persons who are current or prospective policyholders.
One question remains relating to the identification of designated persons. The Government has not been clear as to how such designated persons will be identified. The Insurance Bureau of Canada (the IBC) has announced that the Federal government will be providing Insurers with information from law enforcement that will allow Insurers to identify designated individuals subject to the Declaration under the Emergencies Act. Additionally, the IBC has been asked by the Federal government to act as an intermediary in order to facilitate the flow of information between law enforcement and Insurers. We expect that the IBC will provide further details on this point shortly.
The IBC also announced that the Federal government intends to call a meeting of insurance industry executives to further discuss the implementation of the Declaration under the Emergencies Act. We will provide further information on this matter as it becomes available.