Ethics and Professional Practice LLQP Exam Prep Manual (PDF) 2022

Ethics and professional practice: Life Licence Qualification Program (LLQP) Exam Preparation Manual E-112 – 9th Edition, 2022 Ethics and professional practice 9th Edition, 2022 Revised by Mtre Dominic Veilleux Project management Marie Achard 6th Edition, 2019 Revised by Mtre Dominic Veilleux and Mtre. John Robert Kelly Project management Marie Achard 1st Edition and 2nd Edition, 2015 Written by J-P Bernier LL.B., LL.M. and Glenn M. Davis, LL.B., MTI, TEP Consultation committee Adrienne D. Benkson, MBA, B.A. & Sc., CIWM, Peter B. Goldthorpe, Gordon M. Hill, B.A., LL.B., Me John Robert Kelly, B.A., LL.L., LL.B., Steven G. Kelman, B.Sc., MBA, CFA, David J. McKee, Rae Y. Sands, Gary Senft, Me Dominic Veilleux, Rocco Vetere, James D. H. Wood Project management Marie Achard, Emily Harrison and Lucie Regimbald French adaptation committee Me John Robert Kelly, B.A., LL.L., LL.B. and Me Dominic Veilleux © Autorité des marchés financiers, 2022 All translation and adaptation rights, in whole or in part, are reserved for all countries. No part of the material protected by this copyright may be reproduced or utilized in any form or by any means, electronic or mechanical, including microreproduction, photocopying, recording or any information storage or retrieval systems, without permission in writing from a duly authorized representative of the Autorité des marchés financiers. Despite the preceding paragraph, an authorized course provider may use copyright material as permitted under a licence agreement entered into with the Autorité des marchés financiers. Legal deposit – Bibliothèque et Archives nationales du Québec, 2022 ISBN 978-2-551-26861-0 (PDF) Ethics and professional practice iii FOREWORD This manual is an exam preparation tool for future life insurance agents registered in the Life Licence Qualification Program (LLQP). Its contents will help candidates develop the competency targeted in the ethics and professional practice module of the LLQP Curriculum: Develop an ethical professional practice, in compliance with the rules governing the life insurance1 sector. Chapter overview page The first page of every Chapter outlines the Curriculum module competency components and sub-components that will be covered. Highlighting which of the evaluation objectives are addressed in each of the manual’s Chapters serves to identify the contents that are essential to attain these objectives. It is thus recommended that candidates regularly review the competency components and sub-components in order to contextualize and assimilate them as they read each Chapter. This will help develop an understanding of the nature and scope of the evaluated competency. Candidates must have fully understood the knowledge, strategies and skills covered in each Chapter in order to successfully pass the corresponding module of the LLQP licencing exam. In this text, the masculine form is used for both men and women. 1. In the context of the ethics and professional practice module of the Curriculum, the term “life insurance” is used to refer broadly to all categories of individual and group insurance of persons, namely: life insurance, accident and sickness insurance (living benefits), annuity contracts (segregated funds, GIAs and immediate annuities) and supplemental pension plans. Ethics and professional practice iv TABLE OF CONTENTS List of tables................................................................................................................................. xiii List of abbreviations..................................................................................................................... xiv CHAPTER 1 LEGAL FRAMEWORK GOVERNING LIFE INSURANCE 1.1 Life and accident and sickness insurance in its legal context............................................. 3 1.1.1 Life insurance............................................................................................................ 3 1.1.2 Accident & Sickness insurance................................................................................. 4 1.1.3 Insurers...................................................................................................................... 4 1.1.4 Agency relationship................................................................................................... 4 1.1.5 Agents...................................................................................................................... 4 1.1.5.1 Independent agents..................................................................................... 5 1.1.5.2 Captive agents............................................................................................. 5 1.1.6 Managing general agent (MGA)................................................................................ 5 1.1.7 Agency....................................................................................................................... 6 1.1.8 Regulation of insurance and licencing....................................................................... 6 1.2 General legal principles applicable to a life insurance agent............................................... 8 1.2.1 Capacity and status of persons................................................................................. 9 1.2.2 Natural persons, partnerships and legal persons (corporations)............................... 10 1.2.2.1 Natural persons (individuals)....................................................................... 10 1.2.2.2 Partnerships................................................................................................. 10 1.2.2.3 Legal person (corporation)........................................................................... 10 1.2.3 Minors and guardians................................................................................................ 11 1.2.4 Power of attorney (PoA) and enduring power of attorney......................................... 12 1.2.4.1 Power of Attorney........................................................................................ 13 1.2.4.2 Enduring Power of Attorney......................................................................... 13 1.2.5 Marriage and common law spouse............................................................................ 15 1.2.6 Divorce and separation.............................................................................................. 16 1.2.6.1 Family property............................................................................................ 17 1.2.7 Wills, estates and successions................................................................................. 17 1.2.7.1 Testate and intestate successions............................................................... 18 Ethics and professional practice v 1.2.8 Trusts and trustees.................................................................................................... 20 1.2.9 Bankruptcy................................................................................................................. 20 1.3 Legal principles required for the validity of the contract....................................................... 23 1.3.1 Civil fault.................................................................................................................... 24 1.3.2 Limitation periods...................................................................................................... 24 1.4 Public insurance and retirement regimes............................................................................. 25 1.4.1 Federally sponsored or facilitated programs............................................................. 26 1.4.1.1 Canada Pension Plan (CPP) and disability................................................. 27 1.4.1.2 Old Age Security (OAS) and Guaranteed Income Supplement (GIS)......... 27 1.4.1.3 Employment Insurance............................................................................... 27 1.4.2 Provincially or territorially sponsored or facilitated programs.................................... 28 1.4.2.1 No-fault automobile insurance..................................................................... 29 1.4.2.2 Workers’ compensation............................................................................... 29 1.4.2.3 Universal health care and drug plan............................................................ 29 1.5 Other relevant provincial and territorial legislation for life insurance agents....................................................................................................... 30 1.5.1 Privacy Act................................................................................................................. 30 1.5.1.1 Personal Information Protection and Electronic Documents Act (PIPEDA).................................................................................................... 30 1.5.2 Human rights legislation............................................................................................ 31 1.6 Other relevant federal legislation for life insurance agents.................................................. 32 1.6.1 Criminal Code............................................................................................................ 32 1.6.2 Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)................................................................................................................ 32 1.6.3 National Do Not Call List (DNCL).............................................................................. 32 1.6.4 Anti-spam legislation................................................................................................. 33 CHAPTER 2 INSURANCE POLICY PROVISIONS 2.1 Parties to an individual policy.............................................................................................. 36 2.1.1 Insurer...................................................................................................................... 36 2.1.2 Policyholder.............................................................................................................. 36 2.1.2.1 Successor policyholder................................................................................ 37 Ethics and professional practice vi 2.1.3 Life insured................................................................................................................ 38 2.1.4 Beneficiary................................................................................................................ 38 2.1.4.1 Irrevocable beneficiary designations........................................................... 40 2.1.4.2 Restriction in legislative definition of beneficiary......................................... 42 2.1.4.3 Loss of protection........................................................................................ 43 2.1.4.4 Contingent beneficiary................................................................................ 44 2.1.5 Group insurance policies........................................................................................... 44 2.1.5.1 Plan sponsor................................................................................................ 44 2.1.5.2 Insurer.......................................................................................................... 45 2.1.5.3 Members and scope of coverage to other insured persons........................ 45 2.1.5.4 Beneficiaries................................................................................................ 45 2.2 Formation of policy.............................................................................................................. 46 2.2.1 Rules about forming an individual insurance contract.............................................. 46 2.2.1.1 Application for insurance and representation of risk.................................... 47 2.2.1.2 Temporary insurance................................................................................... 48 2.2.1.3 Changes in insurability................................................................................ 48 2.2.1.4 Approval of application by insurer................................................................ 49 2.2.1.5 Delivery of policy.......................................................................................... 49 2.3 Term and termination of policy............................................................................................ 50 2.3.1 Rescission: 10-day-free look..................................................................................... 50 2.3.2 Surrender................................................................................................................... 50 2.3.3 Expiry or termination.................................................................................................. 51 2.4 Termination by the insurer.................................................................................................... 51 2.4.1 Termination in the event of fraud, misrepresentation or intentional concealment...... 51 2.4.1.1 During the application process.................................................................... 52 2.4.1.2 Within the first two years.............................................................................. 53 2.4.1.3 After two years............................................................................................. 53 2.4.2 Termination for non-payment of sickness or accident insurance premiums.............. 54 2.4.3 Termination for non-payment of life insurance premiums.......................................... 55 2.5 Assignment of a policy......................................................................................................... 55 2.5.1 Absolute assignment................................................................................................. 55 2.5.2 Collateral assignment................................................................................................ 56 Ethics and professional practice vii 2.6 Product specific policy provisions......................................................................................... 56 2.6.1 Individual life insurance............................................................................................. 57 2.6.1.1 Statutory conditions..................................................................................... 58 2.6.1.2 Reduction..................................................................................................... 58 2.6.1.3 Exclusion..................................................................................................... 58 2.6.1.4 Exclusions—contractual or imposed by law................................................ 59 2.6.1.5 Pre-existing condition exclusions................................................................ 59 2.6.1.6 Suicide clause.............................................................................................. 59 2.6.1.7 Living benefits.............................................................................................. 60 2.6.1.8 Cash surrender value (CSV)........................................................................ 60 2.6.1.9 Distinction between collateral loans and insurance policy loans................ 60 2.6.1.10 Riders (Policy amendments)....................................................................... 61 2.6.2 Group life and health insurance................................................................................. 61 2.6.2.1 Determination of the plan member group.................................................... 61 2.6.2.2 Premiums and cost sharing......................................................................... 61 2.6.2.3 Types of group insurance............................................................................ 62 2.6.2.4 Administrative services only (ASO)............................................................. 63 2.6.2.5 Certificates.................................................................................................. 63 2.6.2.6 Booklets...................................................................................................... 64 2.6.2.7 Access to copy of policy.............................................................................. 64 2.6.2.8 Laws applicable to members (residence).................................................... 64 2.6.2.9 Term and termination................................................................................... 65 2.6.3 Individual and group accident and sickness insurance............................................ 65 2.6.3.1 Accidental death and dismemberment (AD&D)........................................... 66 2.6.3.2 Disability specifics........................................................................................ 67 2.6.3.3 Drug insurance............................................................................................ 67 2.6.3.4 Critical illness (CI)........................................................................................ 67 2.6.3.5 Long-term care (LTC)................................................................................. 68 2.6.3.6 Parties.......................................................................................................... 68 2.6.3.7 Rights of parties........................................................................................... 69 2.6.3.8 Effective date............................................................................................... 69 2.6.3.9 Termination of accident and sickness insurance......................................... 69 2.6.3.10 Statutory conditions..................................................................................... 70 Ethics and professional practice viii 2.6.4 Annuities.................................................................................................................... 70 2.6.4.1 Parties.......................................................................................................... 71 2.6.4.2 The policyholder.......................................................................................... 72 2.6.4.3 Annuitant (life insured)................................................................................. 72 2.6.4.4 Payee........................................................................................................... 72 2.6.4.5 Immediate annuities..................................................................................... 73 2.6.4.6 Group annuities........................................................................................... 73 2.6.4.7 Structured settlements................................................................................. 74 2.6.5 Segregated funds...................................................................................................... 74 2.6.6 Pension products and other group annuity products................................................. 76 2.6.6.1 Defined benefit pension plan (DBPP).......................................................... 77 2.6.6.2 Defined contribution pension plan (DCPP).................................................. 77 2.6.6.3 Pooled registered pension plan (PRPP)...................................................... 77 2.7 Other products...................................................................................................................... 77 2.7.1 Deferred profit-sharing plan (DPSP).......................................................................... 78 2.7.2 Tax-free savings account (TFSA).............................................................................. 78 2.7.3 Registered retirement savings plans (RRSP)............................................................ 79 2.7.4 Registered retirement income fund (RRIF)................................................................ 79 2.7.5 Locked-in retirement account (LIRA)......................................................................... 79 2.7.6 Life income fund (LIF)................................................................................................ 79 CHAPTER 3 LIFE INSURANCE, ACCIDENT & SICKNESS INSURANCE AND ANNUITY CLAIMS-PAYMENT OF PROCEEDS 3.1 Rules pertaining to claims and payment of benefits............................................................ 81 3.1.1 Claimant.................................................................................................................... 81 3.1.2 Insurer’s records........................................................................................................ 82 3.1.3 Notice of claim.......................................................................................................... 82 3.1.4 Proof of claim............................................................................................................. 83 3.1.4.1 Documents required................................................................................... 83 3.1.4.2 Probate........................................................................................................ 84 3.1.4.3 Proof of age................................................................................................. 84 3.1.4.4 Proof of identity............................................................................................ 84 3.1.4.5 Accidental vs. natural causes...................................................................... 84 Ethics and professional practice ix 3.2 Disappearance and presumption of death........................................................................... 85 3.2.1 Death of two or more people..................................................................................... 86 3.3 Payment into Court............................................................................................................... 87 3.4 Proceeds on deposit and payout options............................................................................. 87 3.5 Time to pay claim................................................................................................................ 88 3.6 Denial of claim...................................................................................................................... 89 3.6.1 Payment contrary to public order............................................................................... 89 3.7 Accident and sickness claims............................................................................................... 90 3.7.1 Accident death and dismemberment claims.............................................................. 90 3.7.1.1 Documents required.................................................................................... 90 3.7.2 Disability claims......................................................................................................... 90 3.7.2.1 Documents required.................................................................................... 91 3.7.2.2 Medical and other examinations.................................................................. 92 3.8 Segregated funds and annuities........................................................................................... 92 3.8.1 Death before retirement............................................................................................. 93 3.8.2 Death after retirement................................................................................................ 93 CHAPTER 4 RULES AND PRINCIPLES GOVERNING THE ACTIVITIES OF LIFE INSURANCE AGENTS AND ACCIDENT & SICKNESS INSURANCE AGENTS 4.1 Role of the organizations that protect clients....................................................................... 96 4.1.1 Provincial and territorial regulatory authorities.......................................................... 96 4.1.2 Provincial and territorial insurance regulators........................................................... 97 4.1.2.1 British Columbia........................................................................................... 97 4.1.2.2 Alberta......................................................................................................... 98 4.1.2.3 Saskatchewan............................................................................................. 98 4.1.2.4 Manitoba...................................................................................................... 99 4.1.2.5 Ontario......................................................................................................... 99 4.1.2.6 Québec........................................................................................................ 100 4.1.2.7 New Brunswick............................................................................................ 101 4.1.2.8 Nova Scotia................................................................................................. 101 Ethics and professional practice x 4.1.2.9 Prince Edward Island................................................................................... 101 4.1.2.10 Newfoundland and Labrador....................................................................... 102 4.1.2.11 Yukon........................................................................................................... 102 4.1.2.12 Northwest Territories.................................................................................... 102 4.1.2.13 Nunavut....................................................................................................... 102 4.1.3 Canadian Insurance Services Regulatory Organizations (CISRO)........................... 103 4.1.4 Other authorities providing client protection.............................................................. 104 4.1.4.1 Office of the Privacy Commissioner of Canada........................................... 104 4.1.4.2 Financial Transactions and Reports Analyses Centre of Canada (FINTRAC)................................................................................................... 105 4.1.4.3 Assuris......................................................................................................... 125 4.1.4.4 OmbudService for Life and Health Insurance (OLHI).................................. 126 4.1.4.5 Canadian Council of Insurance Regulators (CCIR)..................................... 126 4.1.5 Professional associations.......................................................................................... 127 4.1.6 International Association of Insurance Supervisors (IAIS)......................................... 127 4.1.6.1 Insurance core principles (ICP) 18 and 19 of the IAIS................................. 127 4.2 Main responsibilities of life insurance agents....................................................................... 128 4.2.1 Acting in good faith................................................................................................... 130 4.2.1.1 Duty of care................................................................................................. 130 4.2.1.2 Integrity........................................................................................................ 130 4.2.1.3 Competence............................................................................................... 131 4.2.2 Managing conflicts of interest................................................................................... 132 4.2.2.1 Priority of client’s interest............................................................................. 132 4.2.2.2 Disclosure of conflicts or potential conflicts of interest................................ 133 4.2.2.3 Product suitability......................................................................................... 133 4.2.2.4 Avoiding conflict-of-interest occupations..................................................... 134 4.2.3 Refraining from unfair or deceptive practices........................................................... 134 4.2.3.1 Tied selling................................................................................................... 134 4.2.3.2 Churning and twisting.................................................................................. 135 4.2.3.3 Premium rebating........................................................................................ 136 4.2.3.4 Trafficking in insurance................................................................................ 137 4.2.3.5 Inducing to insure........................................................................................ 138 4.2.3.6 Fronting........................................................................................................ 138 4.2.3.7 Unnecessary delay in delivering policies.................................................... 139 Ethics and professional practice xi 4.2.3.8 Misrepresentation........................................................................................ 140 4.2.3.9 Misappropriating client funds (commingling of funds).................................. 141 4.2.3.10 Making a false document (forgery).............................................................. 142 4.2.3.11 Holding out improperly................................................................................. 142 4.2.3.12 Misusing company-provided illustrations..................................................... 143 4.2.3.13 Defamation.................................................................................................. 144 4.2.4 Making proper disclosure.......................................................................................... 144 4.2.4.1 Product disclosure....................................................................................... 145 4.2.4.2 Disclosure about replacement..................................................................... 146 4.2.4.3 Commission sharing.................................................................................... 147 4.2.4.4 Referrals and referral fees........................................................................... 147 4.2.5 Acting in compliance with regulations and codes of conducts................................... 148 4.2.5.1 Maintaining the required liability insurance, errors and omissions (E&O) coverage.......................................................................................... 149 4.2.5.2 Documenting the file.................................................................................... 150 4.2.5.3 Contract delivery......................................................................................... 150 4.2.6 Handling complaints in a timely and fair manner....................................................... 151 4.2.6.1 Definition of complaint................................................................................ 151 4.2.6.2 Ethical complaints........................................................................................ 151 4.2.6.3 Procedures to follow................................................................................... 151 4.2.7 Core ethical values.................................................................................................... 152 4.3 Licencing process and regulations....................................................................................... 152 4.3.1 Purpose of licencing life insurance agents and agencies......................................... 152 4.3.2 Licencing regime...................................................................................................... 153 4.3.3 Selling to and servicing out-of-province clients......................................................... 153 4.3.4 Revoking of licence................................................................................................... 154 4.3.5 Other products and services for which a licence or registration is required (not exhaustive)......................................................................................................... 154 4.3.5.1 Property and casualty insurance................................................................. 155 4.3.5.2 Securities, including exchange-traded funds (ETF) or mutual funds........... 155 4.3.5.3 Mortgage brokering...................................................................................... 155 4.3.6 Other products and services for which no licence is required................................... 155 4.3.6.1 Acting as a deposit broker........................................................................... 155 4.3.6.2 Acting as a financial planner........................................................................ 155 Ethics and professional practice xii CONCLUSION............................................................................................................................. 156 APPENDIX A Life insurance (concordance schedule)........................................................................................ 157 APPENDIX B Accident & sickness insurance (concordance schedule)............................................................. 160 APPENDIX C Life insurance (concordance schedule)........................................................................................ 162 APPENDIX D Accident & sickness insurance (concordance schedule)............................................................. 164 BIBLIOGRAPHY.......................................................................................................................... 166 Ethics and professional practice xiii LIST OF TABLES CHAPTER 1 Table 1.1: Regulatory and statutory framework for common law provinces and territories............................................................................................... 7 CHAPTER 4 Table 4.1: Assuris’ protection...................................................................................... 126 Table 4.2: Differences between principles and rules.................................................... 129 Ethics and professional practice xiv LIST OF ABBREVIATIONS A&S Accident and sickness AD&D Accidental death and dismemberment AMF Autorité des marchés financiers APS Attending physician’s statement ASO Administrative services only C Chapter CAILBA Canadian association of independent life brokerage agencies CASL Canadian Anti-Spam Legislation CCIR Canadian council of insurance regulators CE Continuing education CEM Commercial electronic message CI Critical illness CISRO Canadian insurance services regulatory organizations CLHIA Canadian Life and Health Insurance Association COD Cash on delivery CPP Canada Pension Plan CRTC Canadian radio-television and telecommunications commission CSA Canadian securities administrators CSF Chambre de la sécurité financière CSV Cash surrender value DBPP Defined benefit pension plan DCPP Defined contribution pension plan DNCL Do Not Call List DPSP Deferred profit-sharing plan E&O Errors and omissions EI Employment Insurance ETF Exchange-traded funds FATCA Foreign account tax compliance act FINTRAC Financial Transactions and Reports Analysis Centre of Canada Ethics and professional practice xv FIO Future income option FPSC Financial Planners Standards Council FSCO Financial services commission of Ontario GIA Guaranteed investment account GIS Guaranteed Income Supplement IAIS International association of insurance supervisors ICBC Insurance corporation of British Columbia ICP Insurance core principle IFB Independent life brokerage agencies IFBC Independent Financial Brokers of Canada IIROC Investment industry regulatory organization of Canada IVIC Individual variable insurance contract LIF Life income fund LIRA Locked in retirement account LIRD Life Insurance Replacement Declaration LLQP Life licence qualification program LTC Long-term care LTD Long-term disability MFDA Mutual funds dealer association MGA Managing general agent MVA Market value adjustment MPI Manitoba Public Insurance Nu Nunavut OAS Old Age Security OFSI Office of the Superintendent of Financial Institutions OLHI Ombudsman for life and health insurance P. Page Para. Paragraph PCMLTFA Proceeds of Crime (Money Laundering) and Terrorist Financing Act PIPEDA Personal Information Protection and Electronic Documents Act PoA Power of attorney Ethics and professional practice xvi PoAPC Power of attorney for personal care PRPP Pooled registered pension plan ROP Return of premium on death RPP Registered Pension Plan RRIF Registered retirement income fund RRSP Registered retirement savings plan S. Section SAAQ Société de l’assurance automobile du Québec SGI Saskatchewan Government Insurance Ss. Sections SDM Substitute decision-maker SIF Summary information folder STOLI Stranger owned life insurance TFSA Tax-free savings account ULCC Uniform Law Conference of Canada V. Versus Ethics and professional practice Chapter 1 – Legal framework governing life insurance 1 CHAPTER 1: LEGAL FRAMEWORK GOVERNING LIFE INSURANCE Competency component ▪ Integrate into practice the legal aspects of insurance and annuity contracts. Competency sub-component ▪ Delimit the legal framework governing life insurance. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 2 1 LEGAL FRAMEWORK GOVERNING LIFE INSURANCE Insurance agents play an essential role in the insurance market. On a daily basis, agents need to be familiar with the legal aspects of insurance. These include insurance products and their specific features, the general form and content of insurance contracts, specific limitations as to the capacity of certain persons to enter into valid insurance contracts, and other important legal limitations. The following Chapter provides an overview of the legal framework applicable to insurance and serves as a guide for insurance agents as it relates to the conduct of their professional practice. Insurance agents are not expected to be legal experts in the field of insurance law; however, they can only benefit by being aware of the legal framework and of certain legal technicalities regulating the insurance industry and, hence, their professional conduct. In Canada, insurance law is taken from several sources, particularly: ▪ The Canadian Constitution; ▪ Common Law; ▪ Legislation and regulation. The Canadian Constitution takes precedence over all other sources of law, including federal, provincial and territorial legislation. That means that legislation and regulation enacted in the Parliament of Canada and the Parliament of every province and territory must comply with it. Notably, the Canadian Constitution regulates the division of legislative powers between the federal and provincial governments (under the Constitution Act, 1867).2 The repatriation of the Canadian Constitution from the United Kingdom, occurred with the passing of the Constitution Act, 1982, which contains the Canadian Charter of Rights and Freedoms.3 The Canadian Constitution gives both the federal and provincial governments the power to pass legislation affecting areas or topics under their jurisdiction. Insurance law is considered to be an exclusive provincial matter under the Canadian Constitution.4 Common Law, which originates from England, is law developed by courts based on the decisions of judges (case law), as opposed to statute law, a civil law system based on laws adopted through the legislative process of a State or regulations issued by the executive branch of government of a State. 2. Constitution Act, 1867, 30 & 31 Vict, c 3 (U.K.). 3. Schedule B to the Canada Act 1982, (U.K.) 1982, c 11, which came into force on April 17, 1982. 4. Canadian Western Bank v. Alberta, 2 SCR 3. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 3 Common Law applies everywhere in Canada, except in Québec (where a system of civil law based on the Civil Code of Québec is in force). In the Common Law system, when a statute is passed into law and declared in force, some element of pre-existing Common Law changes, as required, to avoid any inconsistency. More specifically, the principles applicable to contracts, civil fault, property, common law trusts and agency are still mostly governed by Common Law in Canada. In contrast, insurance law has been mostly enacted through legislation passed by provincial and territorial legislatures. This Chapter presents an overview of the most important Common Law rules, statutes and regulations applicable or relevant to a life and health insurance agent’s business (life insurance and accident and sickness insurance). 1.1 Life and accident and sickness insurance in its legal context An insurance contract is an “undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event, and includes life insurance.”5 Annuity contracts issued by insurers are considered life insurance contracts under provincial and territorial legislation.6 1.1.1 Life insurance Life insurance covers the risk of one or more persons dying. 5. Insurance Act, RSO 1990, c I.8, s.1 “insurance”. See the following for the other Canadian jurisdictions: Insurance Act, RSBC 2012, c 1, s.1 “insurance”; Insurance Act, RSA 2000, c I-3, s.1(aa); The Insurance Act, SS 2015, c I-9.11, s. 1-2(1)”insurance”; The Insurance Act, CCSM c I40, s. 1 “insurance”; Insurance Act, RSNB 1973, c I-12, s. 1 “insurance”; Insurance Act, RSPEI 1988, c I-4, s.1j) “insurance”; Insurance Act, RSNS 1989, c 231, s.3k); Insurance Contracts Act, RSNL 1990, c I-12, s. 2l), Life Insurance Act, RSNL 1990, c L-14, s.2(u) and Insurance Companies Act, RSNL 1990, c I-10, s. 2dd) and Schedule s.1k); Insurance Act, RSNWT 1988, c I-4, s. 1(1) “insurance” and “life insurance”; Insurance Act, RSNWT 1988 (Nu), c I-4, s. 1(1) “insurance” and “life insurance”; Insurance Act, RSY 2002, c 119, s. 1 1 “insurance” and “life insurance”. 6. Insurance Regulation, BC Reg 403/2012, s.1(2) “life insurance”; Insurance Act, RSA 2000, c I-3, s.639; The Insurance Act, SS 2015, c I-9.11, ss.1-4 and 8-100; The Insurance Act, CCSM c I40, s.148(3); Insurance Act, RSO 1990, c I.8, s.171(2); Insurance Act, RSNB 1973, c I-12, s.1 “life insurance”; Insurance Act, RSNS 1989, c 231, s.3(o) “life insurance” (vii); Insurance Act, RSPEI 1988, c I-4, s.1(k.1) “life insurance” (vii); Life Insurance Act, RSNL 1990, c L-14, s.3.1; Insurance Act, RSY 2002, c 119, s.1 “life insurance” b), c) and d); Insurance Act, RSNWT 1988, c I-4, s.25, 239 and 244; Insurance Act, RSNWT (Nu) 1988, c I-4, s.25, 239 and 244. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 4 1.1.2 Accident & Sickness insurance Accident and sickness insurance may cover loss of health in several ways: ▪ Loss, due to accident or sickness, of the ability to work at gainful employment (disability insurance); ▪ Onset of a diagnosed illness covered by the contract, such as cancer, heart attack, or stroke (critical illness); ▪ Accidental death; ▪ Accidental dismemberment; ▪ Reimbursement of medical fees and drugs; ▪ Long term care needs. 1.1.3 Insurers Insurance contracts are created and underwritten by business corporations or mutual insurance corporations which are licenced by the government to act as insurers. 1.1.4 Agency relationship In law, a relationship of delegated authority is called “agency”, and the individuals in that role are called “agents”. The person, or corporation, delegating the authority is called “the principal”. The principal controls the extent of the delegation. 1.1.5 Agents In common law provinces and territories, the relationship between the insurance company and a life insurance agent (who sells that company’s policies) is considered to be that of a principal and agent. In other words, agents act on behalf of the insurance company in selling insurance to clients. The terms and limitations of the agent’s authority are outlined in the written contract each agent signs with each company he represents. Insurance agents are either employed by individual insurers or are independent representatives of specific insurance companies to sell that company’s products to clients. Agents can be categorized as: ▪ Independent agents; ▪ Captive agents.7 7. Captive agents are also referred to as career agents or exclusive agents. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 5 1.1.5.1 Independent agents Independent agents will have contracts with two or more insurers. Independent agents can sell policies from a number of insurance companies. They generally place their business through managing general agents (MGA) who review applications, submit them to the insurers, collect and allocate commissions. 1.1.5.2 Captive agents Captive agents represent a single insurer or are bound by contractual stipulations or employment arrangements to represent a single MGA or insurance marketing entity. The captive agent is an employee of a specific insurance company (or affiliate of such company) and only sells that company’s products in return for commission. A captive agent may also be a self-employed worker having concluded a distribution agreement with an insurer or an Insurer’s affiliate (with an exclusivity clause) 1.1.6 Managing general agent (MGA) A managing general agent (MGA) facilitates business between agents, their clients, and insurers by providing some or all of the following services: ▪ Supporting and assisting an agent in obtaining contracts with insurers, which can include granting authority to an agent to act on behalf of an insurer; ▪ Processing and tracking agents’ business submitted by an agent; ▪ Providing agents with direct sales support; ▪ Facilitating the two-way flow of information between the insurer and the agent; ▪ Pooling of commission payments for the agent from various insurers; ▪ Facilitating the submission of completed contracting requirements between an agent and an insurer; ▪ Training agents; ▪ Providing market conduct compliance supports to insurers; ▪ Developing products and/or assisting in the adjusting of claims on behalf of an insurer.8 8. Canadian Council of Insurance Regulators. Issues paper managing general insurance distribution model. [online]. Revised February 2011. https://www.ccir-ccrra.org/Documents/View/2682. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 6 1.1.7 Agency An insurance agency is either a corporation or a partnership that holds a licence from a regulator or several regulators. An insurance agency must have at least one licenced insurance agent for the same category of insurance for which the insurance agency holds a licence. An agent who wants to expand his business by hiring, training and supervising other agents must apply for a licence as a corporate agency life licence meeting the requirements of the specific province (or territory) where they intend to operate.9 A corporate life insurance agency can also submit their business through MGAs. There are a number of conditions regarding certain matters, such as nominees, designated representatives, the agency name, trade name, and registration with the government that a corporate agency must meet to become licenced as a life insurance agency. Any employee of an agency, whether the agency is a corporation or a partnership, who acts as a life insurance agent, will need to be licenced. This includes anyone who: ▪ Solicits insurance; ▪ Obtains or takes an application for insurance; ▪ Negotiates for or procures insurance; ▪ Transmits insurance applications and/or policies; ▪ Offers or assumes to act in the negotiation of insurance; ▪ Negotiates insurance continuance or renewal; ▪ Collects or receives a premium; ▪ Develops an illustration for life insurance. An insurance agency must be licenced in British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland and Labrador. 1.1.8 Regulation of insurance and licencing Given the importance of insurance products to clients and society, it is not surprising that all companies selling life insurance policies in Canada, as well as the various distribution channels and the agents themselves, are heavily regulated and supervised. Provincial and territorial insurance acts contain extensive provisions governing insurers. Provincial and territorial insurance legislation gives designated actuaries extensive powers and responsibilities, including reporting on the financial soundness of a life insurer’s business operations. Designated actuaries must belong to the Canadian Institute of Actuaries, and they must conform to its practices and processes.10 9. For an example of the requirements for a corporate agency life licence consult: https://www.fsrao.ca/licensing/ life-and-accident-sickness-corporate-agency-or-partnership. 10. See: http://www.cia-ica.ca/home. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 7 Under the provisions of provincial and territorial law, insurance agents must be licenced. The name of the applicable regulatory and statutory framework varies from province to province. The regulation and supervision of life insurance agents will be covered in more detail in Chapter 4 Rules and principles governing the activities of life insurance agents and accident & sickness insurance agents. From a legal perspective, Table 1.1 provides an overview of the regulatory and statutory framework for the common law provinces and territories. TABLE 1.1: Regulatory and statutory framework for common law provinces and territories PROVINCE/ LEGISLATION SUPERVISION OF INSURANCE COMPANIES TERRITORY Insurance Act, RSBC 2012, c 1 Financial Institutions Commission of British British Financial Institutions Act, RSBC 1996, Columbia Columbia c 141 Insurance Act, RSA 2000, c I-3 The Office of the Alberta Superintendent of Insurance (Alberta Treasury Board and Alberta Finance, Financial Sector, Regulation and Policy) The Insurance Act, SS 2015, c I-9.11 Financial and Consumer Affairs Authority Saskatchewan of Saskatchewan (FCAA) The Insurance Act, CCSM, c I40 Financial Institutions Regulation Branch Manitoba Insurance Agents and Adjusters (FIRB) (part of Manitoba Financial Regulation, 389/87 Services Agency) Insurance Act, RSO 1990, c I.8 Since June 8, 2019, it is the Financial Services Regulatory Authority of Ontario Ontario (FSRA), in replacement of the Financial Services Commission of Ontario (FSCO) Insurance Act, RSNB 1973, c I-12 Financial and Consumer Services New Brunswick Commission (Insurance Division) (FCNB) Insurance Act, RSNS 1989, c 231 Office of the Superintendent of Insurance of Nova Scotia (part of the Nova Scotia Nova Scotia Department of Finance and Treasury Board, Office of the Financial Institutions Division) Insurance Act, RSPEI. 1988, c I-4 Prince Edward Island Superintendent Prince Edward of Insurance (part of Justice and Public Island Safety, Consumer, Corporate and Financial Services Division) Ethics and professional practice Chapter 1 – Legal framework governing life insurance 8 PROVINCE/ LEGISLATION SUPERVISION OF INSURANCE COMPANIES TERRITORY Life Insurance Act, RSNL 1990, c L-14 Office of the Superintendent of Insurance Accident and Sickness Insurance Act, (part of Service NL) RSNL 1990, c A-2 Insurance Adjusters, Agents and Newfoundland Brokers Act, RSNL 1990, c I-9 and Labrador Insurance Companies Act, RSNL 1990, c I-10 Insurance Contracts Act, RSNL 1990, c I-12 Insurance Act, RSY 2002, c 119 Office of the Superintendent of Insurance (Department of Community Services, Yukon Professional Licensing & Regulatory Affairs Branch) Northwest Insurance Act, RSNWT 1988, c I-4 Office of the Superintendent of Insurance Territories (part of Finance) Insurance Act, RSNWT Nu 1988, c I-4 Superintendent of Insurance of Nunavut Nunavut (part of Finance) 1.2 General legal principles applicable to a life insurance agent While each province has its own legislation, the provinces and territories have all based their respective insurance legislation on a model statute created in the 1920’s in cooperation with a body called the “Uniform Law Conference.”11 This is why the insurance legislation applicable in every Canadian jurisdiction (except Québec) is very similar. Having more uniform practices and procedures when dealing with life insurance contracts is helpful to clients and insurers, regardless of the province in which they are located. If a policyholder moves to another province after the policy is issued, that province’s laws will apply to certain aspects of their estate planning, such as their will. However, the law that applies to the interpretation of an insurance contract (including the naming of beneficiaries) will be the law of the province or territory where the policy was contracted.12 Fortunately, the statutory basis for the creation and treatment of insurance contracts in the various provinces and territories is very similar. The result is consistent treatment of legal principles and their application to the life insurance agent’s business. 11. David Norwood and John P. Weir, Norwood on Life Insurance Law in Canada, 3rd Ed., Toronto, Carswell, 2002, p. 5. 12. Club Resorts Ltd. v. Van Breda, 2012 SCC 17. Insurance Act, RSBC 2012, c 1, s.2 and 39; Insurance Act, RSA 2000, c I-3, s.513, 514 and 640; The Insurance Act, SS 2015, c I-9.11, ss. 8-99 and 8-101; The Insurance Act, CCSM c I40, s. 149(1); Insurance Act, RSO 1990, c I.8, s.172(1); Insurance Act, RSNB 1973, c I-12, s. 133(1); Insurance Act, RSNS 1989, c 231, s.65(1); Insurance Act, RSPEI 1988, c I-4, s.120(1); Life Insurance Act, RSNL 1990, c L-14, s.3(1); Insurance Act, RSY 2002, c 119, s.77(1); Insurance Act, RSNWT 1988, c I-4, s.70(1); Insurance Act, RSNWT (Nu) 1988, c I-4, s.70(1). Ethics and professional practice Chapter 1 – Legal framework governing life insurance 9 These relevant legal principles that arise from Common Law or from statutory law (statutes) are addressed in the following order: ▪ Capacity and status of persons; ▪ Natural persons, partnerships and legal persons (corporations); ▪ Minors and guardians; ▪ Powers of attorney (PoA); ▪ Marriage and common law unions; ▪ Divorce and separation; ▪ Wills, estates and successions; ▪ Trusts and trustees; ▪ Bankruptcy. 1.2.1 Capacity and status of persons In addition to a minimum age, the law requires that anyone, of any age, who is seeking to enter into any contract, must have “legal capacity” to contract. From a legal standpoint, the concept of capacity relates to a person’s ability to provide valid consent. The excerpt below illustrates the legal definition presumed for “legal capacity” in Ontario: 2. (1) A person who is eighteen years of age or more is presumed to be capable of entering into a contract. (2) A person who is sixteen years of age or more is presumed to be capable of giving or refusing consent in connection with his or her own personal care.13 The capacity to enter into a contract means the individual is capable of understanding the terms of the contract, and that they are entering into a binding agreement, even if they do not know all the details. Individuals who are mentally incapable lack the legal capacity to give a valid consent, and therefore, to enter into a contract, including an insurance contract. There is no recognized maximum age at which a person is presumed to be incapable of giving valid consent age. Therefore, a 100-year-old person is still presumed by law to have the legal capacity to enter into a contract. 13. Substitute Decisions Act, 1992, SO 1992, c 30, s. 2 and Health Care Consent Act, 1996, SO 1996, c 2, Sch A. See also: Health Care (Consent) and Care Facility (Admission) Act, RSBC 1996, c 181; Personal Directives Act, RSA 2000, c P-6; The Health Care Directives Act, CCSM c H27; Infirm Persons Act, RSNB 1973, c I-8; Personal Directives Act, SNS 2008, c 8; Consent to Treatment and Health Care Directives Act, RSPEI 1988, c C-17.2; Care Consent Act, SY 2003, c 21; Personal Directives Act, SNWT 2005, c 16. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 10 1.2.2 Natural persons, partnerships and legal persons (corporations) It is important to understand that a distinction is made between a natural person, a partnership and a legal person (corporation). 1.2.2.1 Natural persons (individuals) A natural person is defined as a human being. As stated above, a natural person with legal capacity has the ability to make decisions about their person and property and to bear the risks and rewards of those decisions. This personal autonomy includes the right to enter into contracts. The term “individual” is also used in legislation, including taxation, to describe a natural person. 1.2.2.2 Partnerships A partnership is an arrangement between two or more parties carrying on business together with a view to making a profit.14 The partners themselves can be individuals or corporations. In an ordinary partnership, all partners may sign the contract on behalf of the partnership, and each partner is financially liable for contracts entered into by other partners on behalf of the partnership. Some partnerships enjoy a statutory limitation on partner liability created by the relevant provincial statute. These are called “Limited Liability Partnerships,” and they are a common business arrangement for lawyers and accountants. 1.2.2.3 Legal person (corporation) A corporation is a “legal person.” In other words, it can be described as a separate entity from those that manage or own it.15 Corporations effectively have most of the property rights of individuals, and so can enter into contracts, and buy, sell, and own all kinds of property. The forms of corporations for businesses differ from the forms for charities and not-for-profits. Business corporations are owned by shareholders, who can be either individuals, other corporations, or partnerships. According to the federal or provincial laws under which they are established, corporations are governed by a board of directors elected by the shareholders.16 Under the authority of the directors, the corporation can delegate authority to various executive parties called “officers,” such as the president, vice-president, etc. 14. Partnership Act, RSBC 1996, c 348; Partnership Act, RSA 2000, c P-3; The Partnership Act, RSS 1978, c P-3; Partnership Act, CCSM c P30; Partnerships Act, RSO 1990, c P.5; Partnership Act, RSNB 1973, c P-4; Partnership Act, RSNS 1989, c 334; Partnership Act, RSPEI 1988, c P-1; Partnership Act, RSNL 1990, c P-3; Partnership and Business Names Act, RSY 2002, c 166; Partnership and Business Names Act, RSNWT 1988, c P-1; Partnership Act, RSNWT (Nu) 1988, c P-1. 15. See: https://www.educaloi.qc.ca/en/capsules/business-corporations-companies. 16. Canada Business Corporations Act, RSC 1985, c C-44; Business Corporations Act, SBC 2002, c 57; Business Corporations Act, RSA 2000, c B-9; Companies Act, RSA 2000, c C-21; The Business Corporations Act, RSS 1978, c B-10; The Companies Act, RSS 1978, c C-23; The Corporations Act, CCSM c C225; Business Corporations Act, RSO 1990, c B.16; Business Corporations Act, SNB 1981, c B-9.1; Companies Act, RSNB 1973, c C-13; Nova Scotia Business Incorporated Act, SNS 2000, c 30; Companies Act, RSNS 1989, c 81; Companies Act, RSPEI 1988, c C-14; Corporations Act, RSNL 1990, c C-36; Business Corporations Act, RSY 2002, c 20; Business Corporations Act, SNWT 1996, c 19; Business Corporations Act, SNWT (Nu) 1996, c 19. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 11 When a corporation seeks to make a contract, or transact business, someone must sign on behalf of the corporation. This person is usually referred to as a signing officer. Executive officers, such as the president or secretary, are authorized, usually by a corporate by-law or a resolution of the board of directors, to represent the company in specific transactions or activities. Insurance applications often call for the signatures of two officers or directors, or ask the person signing to indicate that they are one of the persons, or perhaps the only one, authorized to sign on behalf of the corporation. 1.2.3 Minors and guardians The rights to legal autonomy referred to above have not yet been acquired by “minors,” who are persons under what is called the “age of majority.” The age of majority varies from one province or territory to another. It was formerly age 21, but has been reduced to age 18 in Alberta, Manitoba, Ontario, Prince Edward Island, Québec, and Saskatchewan.17 It is age 19 in British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Northwest Territories, Nunavut, and the Yukon.18 However, provincial insurance legislation says that, for contracting a policy (but not as a beneficiary receiving death benefits), a person 16 years of age or older has the capacity to contract for insurance on its own behalf.19 Parents of minors aged 15 and under (without the capacity to contract a life or accident and sickness insurance policy) have an insurable interest in their children and may apply for a life insurance policy in their name. 17. Age of Majority Act, RSA 2000, c A-6, s. 1; The Age of Majority Act, RSS 1978, c A-6, s. 1; The Age of Majority Act, CCSM c A7, s. 1; Age of Majority and Accountability Act, RSO 1990, c A.7, s. 1; Age of Majority Act, RSPEI 1988, c A-8, s. 1. 18. See: https://www.canada.ca/en/immigration-refugees-citizenship/services/study-canada/study-permit/prepare/ minor-children.html. See also: Age of Majority Act, RSBC 1996, c 7, s. 1; Age of Majority Act, RSNB 1973, c A-4, s. 1; Age of Majority Act, RSNS 1989, c 4, s 2; Age of Majority Act, SNL 1995, c A-4.2, s. 2; Age of Majority Act, RSY 2002, c 2, s. 1; Age of Majority Act, RSNWT 1988, c A-2, s. 2; Age of Majority Act, RSNWT (Nu.) 1988, c A-2, s. 2. 19. Insurance Act, RSBC 1996, c 226, s. 72 (Life) and s. 110 (A&S); Insurance Act, RSA 2000, c I-3, s. 673 (Life) and 718 (A&S); The Insurance Act, SS 2015, c I-9.11, s. 8-134 (Life) and s. 8-192 (A&S); The Insurance Act, CCSM c I40, s. 179 (Life) and s. 271(3), 218 (A&S); Insurance Act, RSO 1990, c I.8, s. 202 (Life) and s. 307 (A&S); Insurance Act, RSNB 1973, c I-12, s. 163, 164 (Life) and s. 201 (A&S); Insurance Act, RSNS 1989, c 231, s. 204, 205 (Life), s. 81 (A&S); Insurance Act, RSPEI 1988, c I-4, s. 150 (Life) and s. 190 (A&S); Life Insurance Act, RSNL 1990, c L-14, s. 33, 34 and Accident and Sickness Insurance Act, RSNL 1990, c A-2, s. 19; Insurance Act, RSY 2002, c 119, s. 107 and 108 (Life) and s. 191 (A&S); Insurance Act, RSNWT 1988, c I-4, s. 100, 101 (Life) and s. 184 (A&S); Insurance Act, RSNWT (Nu.) 1988, c I-4, s. 100, 101 (Life) and s. 184 (A&S). Ethics and professional practice Chapter 1 – Legal framework governing life insurance 12 In some provinces, parents also have the right, as guardian of their minor child, to give consent on behalf of the child to conduct some financial transactions. Where it applies, this parental right is conferred by some provincial statute.20 In their will, parents can appoint a guardian for their minor children and authorize the executor21 or estate trustee to make payments to such guardian. A guardian of minors may also be appointed by a court. Grandparents, aunts and uncles, or even older siblings or foster parents may apply for, and take on this role in the absence or incapacity of the actual parent. A court-appointed guardian is important in insurance practice for two main reasons. First, if a death benefit is payable to a minor, the guardian may be entitled to accept the payment and discharge the insurer from its obligations under the contract.22 Second, if insurance is being applied for on behalf of a minor as the life insured, and there is no parent, it may be the guardian who will be answering questions on behalf of young minors and completing the application. The guardian will also give consent, on behalf of the minor, to the release of medical information to support the underwriting of the application. If there is no person capable of giving and authorized to give a valid discharge to the insurer for the insurance money, the insurer shall, within 30 days after receiving the evidence required, pay the money and any applicable interest into court to the credit of the minor.23 In that case, the money will be managed by an official connected with the Public Trustee, if there is no trustee, or court-appointed guardian to receive it. 1.2.4 Power of attorney (PoA) and enduring power of attorney As part of a life insurance agent’s practice, the agent must understand the circumstances and legal mechanisms relating to when the rights of an insurance policy are transmitted to another person. This Section discusses the transfer of certain rights and its impact in the field of insurance. 20. Family Law Act, SBC 2011, c 25; Public Guardian and Trustee Act, RSBC 1996, c 383; Adult Guardianship Act, RSBC 1996, c 6; Family Law Act, SA 2003, c F-4.5; Public Trustee Act, SA 2004, c P-44.1; Minors’ Property Act, SA 2004, c M-18.1; Adult Guardianship and Trusteeship Act, SA 2008, c A-4.2; Public Trustee Act, RSS 1978, c P-43.1; The Adult Guardianship and Trusteeship Act, SS 2000, c A-5.3; The Children’s Law Act, SS 2020, c 2; The Public Guardian and Trustee Act, CCSM c P205; The Infants’ Estates Act, CCSM c I35; Public Guardian and Trustee Act, RSO 1990, c P.51; Children’s Law Reform Act, RSO 1990, c C.12; Guardianship of Children Act, RSNB 2011, c 167; Public Trustee Act, SNB 2005, c P-26.5; Guardianship Act, SNS 2002, c 8; Adult Capacity and Decision-making Act, SNS 2017, c 4; Public Trustee Act, RSNS 1989, c 379; Public Trustee Act, RSPEI 1988, c P-32.2; Adult Protection Act, RSPEI 1988, c A-5; Public Trustee Act, 2009, SNL 2009, c P-46.1; Children’s Law Act, RSY 2002, c 31; Decision Making, Support and Protection to Adults Act, SY 2003, c 21; Public Guardian and Trustee Act, SY 2003, c 21, Sch C; Guardianship and Trusteeship Act, SNWT 1994, c 29; Public Trustee Act, RSNWT 1988, c P-19; Children’s Law Act, SNWT 1997, c 14; Children’s Law Act, SNWT (Nu) 1997, c 14; Guardianship and Trusteeship Act, SNWT (Nu) 1994, c 29; Public Trustee Act, RSNWT (Nu) 1988, c P-19. 21. Liquidator in Québec. 22. See the following as an example, Family Law Act, SBC 2011, c 25, Part 4 - Care of and Time with Children, s. 41-50. 23. See the following as an example, The Insurance Act, CCSM c I40, s. 192. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 13 To address the risks of becoming unable to look after themselves (personal care) or manage their property, adult individuals may voluntarily appoint a legal representative while they are still capable, to represent them and make decisions on their behalf when they are coming to the end of their life, or in the case they become incapable. 1.2.4.1 Power of Attorney A power of attorney is a legal document made by one person who appoints another person, called an “attorney,” to deal with the business and property of another person and to make financial and legal decisions on their behalf. A power of attorney can be very specific or very broad. A power of attorney ends if the person who gave the power of attorney becomes mentally incapable.24 The attorney is also called the “agent,” and the person appointing the attorney is called the “principal.” 1.2.4.2 Enduring Power of Attorney An enduring power of attorney is a legal document made by one person (the principal) who appoints another person (the attorney or agent) to make financial and legal decisions for the principal.25 An enduring power of attorney will continue even if the principal becomes mentally incapable of making decisions. To create an enduring power of attorney, the document must be properly signed, and must state: ▪ Whether the attorney (the person appointed to make decisions) can act while the person is capable or only while the person is incapable; ▪ That the attorney’s authority continues despite the incapability of the person. A property power of attorney document, depending on its terms, may come into effect immediately; or it may require someone, such as a doctor or capacity assessor, to “trigger” its effect, i.e. to determine that the donor of the power has become incapable of managing its own affairs. The attorney, by statute, usually has all the powers required to deal with the owner’s property, but not to make a will.26 In addition, most insurers will refuse a beneficiary designation made by an attorney,27 except if a court order is made to the contrary, or in the case of an annuity contract, when there is a transfer 24. Several jurisdictions have of Power of Attorney Act. See: Power of Attorney Act, RSBC 1996, c 370; Powers of Attorney Act, RSA 2000, c P-20; Powers of Attorney Act, 2002, SS 2002, c P-20.3; The Powers of Attorney Act, CCSM c P97; Powers of Attorney Act, RSO 1990, c P.20; Powers of Attorney Act, RSNS 1989, c 352; Powers of Attorney Act, RSPEI 1988, c P-16; Powers of Attorney Act, SNWT 2001, c 15; Powers of Attorney Act, SNu 2005, c 9. 25. Enduring Powers of Attorney Act, SNB 2019, c 30; Enduring Power of Attorney Act, RSY 2002, c 73; Enduring Powers of Attorney Act, RSNL 1990, c E-11. 26. Powers of Attorney Act, 2002, SS 2002, c P-20.3, s. 16 (2). 27. David Norwood and John P. Weir, Norwood on Life Insurance Law in Canada, 3rd Ed., Toronto, Carswell, 2002, p. 86. See also: Richardson Estate v. Mew, 2009 ONCA 403. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 14 of money from another financial institution in the presence of an existing beneficiary designation made with the former financial institution.28 Otherwise, the attorney would be able to revoke a beneficiary designation made by the principal by transferring monies from one financial institution to another. When it comes to dealing with insurance transactions, insurance agents (before accepting the instructions given by a purported power of attorney) should obtain a certified true copy of the power of attorney from a notary public29 and have it reviewed by the insurance company that will be asked to act upon instructions given under its authority. Insurance agents could be asked by trusting clients to act as their power of attorney (and executor, and trustee). This arrangement is not covered by professional errors and omissions insurance, and could put the insurance agent in a conflict of interest with the client and, potentially, in trouble with the insurance regulator. For these reasons, agents should decline to accept such an appointment, at least without thorough legal advice on the subject beforehand. If an adult becomes incapable and has not appointed a personal representative, a court may appoint someone, including a trust company, to manage their affairs.30 Trust companies commonly act to manage the finances of incapable adult persons, but will not manage the personal care aspects. Court-appointed guardians of an adult person who has become incapable could transact insurance business concerning an existing policy, such as a term renewal or conversion; or they might buy segregated funds or annuity products as an investment for the incapable, always subject to the authority granted by the terms of the court order appointing them. Unlike enduring powers of attorney, guardianship only comes into effect after a person has been declared incapable. They require the person applying to be appointed as guardian to propose a property management plan for the incapable. Guardians’ activities are always subject to review by the court that appointed them. Clients often mistakenly refer to powers of attorney for personal care (PoAPC) as “living wills.” A power of attorney is a legal document in which a specific person is named to act on an individual’s behalf. A “living will” simply addresses your treatment and personal care wishes and does not need to name anyone or be written in any specific way. Nonetheless, treatment wishes (your “living will” or “advance directive”) can still be included in a power of attorney document so that the attorney is aware of them. 28. Desharnais v. Toronto Dominion Bank, 2002 BCCA 640 (CanLII), jj. Rowles, Prowse and Thackray. Another exception is found in Hanson Estate, 2016 ONSC 2382 (CanLII), where the owner of a life insurance policy physically disabled from multiple sclerosis but mentally competent, directed his attorney for property to alter the beneficiary designation, given the attorney for property advised the insurer that he changed the policy designation as agent for the owner by proxy with specific instructions (no discretion given to the attorney). 29. See for instance the Notaries Act, R.S.O. 1990, c N.6. In British Columbia, a notary public has more powers than notaries public of other Canadian jurisdictions (except Quebec), such as dispensing legal advice and drafting public instruments, including in real estate and wills and estate planning. See: Notaries Act, RSBC 1996, c 334. It is also in British Columbia a self-regulating profession (Society of Notaries Public of British Columbia). 30. Substitute Decisions Act, 1992, SO 1992, c 30, s. 22. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 15 1.2.5 Marriage and common law spouse Insurance agents will often encounter clients who are single, married or with common law spouses or who are experiencing a marriage or relationship breakdown. In the latter situation, a client can be obligated to pay spousal and child support. To do a thorough needs analysis, taking these client obligations into account and developing a familiarity with how and when support obligations may arise, can be useful. This in turn calls for an understanding of the legal relationships clients may enter into with third parties. It is crucial for agents to understand that the property rights of married spouses usually differ significantly from those of common law spouses when their relationship breaks down. Common law status (no presumed division)31 is different from married status (presumed division)32 in this regard. Furthermore, the rights of married spouses to share on an intestacy (the state or condition of dying without a will, which is discussed below) are usually dramatically different from those of common law spouses.33 Marriage is a formal legal status that is acquired and terminated pursuant to federal law,34 though the format of the marriage “celebration” is controlled provincially.35 The legally recognized state of marriage immediately has significant effects on property ownership and civil rights that are subject to provincial and territorial law. It creates both legal rights and obligations. In Canada, any two persons may become married,36 but individuals may only be formally married to one spouse at a time. Married status is retained until the death of a spouse, the annulment of the marriage or until a legally valid divorce is granted by court order. 31. Except in some jurisdictions: Family Law Act, SBC 2011, c 25 (s. 1 “spouse” and s. 81); The Family Property Act, SS 1997, c F-6.3 (s.2 “spouse” and 20); Family Property Act, CCSM c F25 (s.1(1) “common law relationship”, “spouse” and 13); Family Law Act, SNWT 1997, c 18 (s.1 “spouse” and 33); Family Law Act, SNWT (Nu) 1997, c 18 (s.1 “spouse” and 33). 32. Matrimonial Property Act, RSA 2000, c M-8 (s.1e) and 3); Family Law Act, RSO 1990, c F.3 (s.1 “spouse” and 4); Marital Property Act, SNB 2012, c 107 (s.1 “spouse” and 3); Matrimonial Property Act, RSNS 1989, c 275 (s.2 “spouse” and 12); Family Law Act, RSPEI 1988, c F-2.1 (s.1(1)g) and 6); Family Law Act, RSNL 1990, c F-2 (s.2(1)e), 5, and 21); Family Property and Support Act, RSY 2002, c 83 (s.1 “spouse and 6). 33. Wills, Estates and Succession Act, SBC 2009, c 13 (s.2 and 20 to 22); Wills and Succession Act, SA 2010, c W-12.2 (s.1(1)a) and 60 to 64: adult interdependent has the same rights as a marries spouse); Adult Interdependent Relationships Act, SA 2002, c A-4.5 (s.3); The Intestate Succession Act, 2019, SS 2019, c I-13.2 (s. 2 “spouse” and 6 to 8); The Intestate Succession Act, CCSM c I85 (s.2: common law spouse has same right as married spouse); Succession Law Reform Act, RSO 1990, c S.26 (s.1(1) “spouse” and 44 to 46; Devolution of Estates Act, RSNB 1973, c D-9 (s. 21 to 28 and 36); Intestate Succession Act, RSNS 1989, c 236 (s. 4 to 6); Probate Act, RSPEI 1988, c P-21 (s. 88 to 99); Intestate Succession Act, RSNL 1990, c I-21 (s.4 to 6); Estate Administration Act, RSY 2002, c 77 (s. 74 and 80); Intestate Succession Act, RSNWT 1988, c I-10 (s.1 “spouse” and 2(3): common law spouse has same right as married spouse); Intestate Succession Act, RSNWT (Nu) 1988, c I-10 (s.1(1) “spouse” and 2(3): common law spouse has same right as married spouse). 34. Civil Marriage Act, SC 2005, c 33. see also: Reference re Same-Sex Marriage, 3 S.C.R. 698. 35. See as an example: Marriage Act, RSO 1990, c M.3. 36. Marriage Act, RSO 1990, c M.3, s. 5. With the exception of the cases indicated in the Marriage (Prohibited Degrees) Act, SC 1990, c 46. Ethics and professional practice Chapter 1 – Legal framework governing life insurance 16 Couples may adjust their legal rights before (pre-nuptial) or during a relationship by entering into a domestic or marriage contract with each other. Common law couples can also enter into a domestic contract, sometimes called a “cohabitation agreement.” Common law status in most provinces and territories is determined by cohabitation in a conjugal or marriage-like relationship for a specific period of time. Rights acquired under common law spousal status vary widely. In most provinces and territories, common law partners can acquire the right to seek spousal support, if needed, upon relationship breakdown.37 In addition to support while living together as a couple, common law spouses are sometimes entitled to claim dependant’s relief in the event of the death of a spouse who failed to make adequate provision for the other. Spousal status is also very important in pension law, where the right to be a surviving beneficiary will be affected by the existence or non-existence of someone else qualifying as a spouse under the terms of the pension plan.38 Insurance agents can perform a valuable service by advising clients to seek competent legal advice concerning the effects of marriage compared to a common law spouse relationship on their financial and legal arrangements. 1.2.6 Divorce and separation In the event of divorce or separation,39 the value of the policy may become subject to the valuation and division of property. Insurance proceeds received from a third party may receive preferential treatment similar to inheritances and gifts, and be excluded from the rebalancing of financial assets.40 37. Family Law Act, RSO 1990, c F.3; Family Law Act, SBC 2011, c 25; Family Law Act, SA 2003, c F-4.5; The Family Property Act, SS 1997, c F-6.3; Family Property Act, CCSM c F25; Marital Property Act, SNB 2012, c 107; Matrimonial Property Act, RSNS 1989, c 275; Family Law Act, RSPEI 1988, c F-2.1; Family Law Act, RSNL 1990, c F-2; Family Property and Support Act, RSY 2002, c 83; Family Law Act, SNWT 1997, c 18; Family Law Act, SNWT (Nu) 1997, c 18. Regarding common law spouses right to division of family property, see above footnotes 31 and 32. 38. Pension Benefits Standards Act, 1985, RSC 1985, c 32 (2nd Supp) (s.2(1) “survivor”, 16.3, 22(2), 23, 24 and 25); Pension Benefits Division Act, SC 1992, c 46, Sch II; Pension Benefits Standards Act, RSBC 1996, c 352 (s.1(1) “spouse”, 34 and 35); Employment Pension Plans Act, SA 2012, c E-8.1 (s.1(3) and 88 to 90); Pension Benefits Act, 1992, SS 1992, c P-6.001 (s.2(1)ff), 33 and 34); The Pension Benefits Act, CCSM c P32 (s.1(1) “common-law partner”, 21(26), 23(2)); Pension Benefits Act, RSO 1990, c P.8 (s.1(1) “spouse”, 44 and 48); Pension Benefits Act, SNB 1987, c P-5.1 (s.1 “common-law partner” and “spouse”, 1(2), 41(3) and 43.1; Pension Benefits Act, RSNS 1989, c 340 (s.2ga) and aj), 52 and 56); Pension Benefits Act, 1997, SNL 1996, c P-4.01 (s.2(c.1) and ff), 41 and 45). 39. Legally recognized separations are treated with an agreement or a court order. Agreements and separation orders can resolve some family issues, but they do not legally end the marriage. The only way to legally end the marriage is to obtain a divorce. See as an example: http://www.attorneygeneral.jus.gov.on.ca/english/family/ divorce/default.asp 40. Family Law Act, RSO 1990, c F.3, s. 4(2), par. 4; Family Law Act, SBC 2011, c 25, s.85 (1) (d); Family Law Act, SA 2003, c F-4.5, s. 80.1 (1) (f); The Family Property Act, SS 1997, c F-6.3, s. 23 (1) (b); Family Property Act, CCSM c F25, s.10 (1) (i); Marital Property Act, SNB 2012, c 107, s.1 (iv) (v); Matrimonial Property Act, RSNS 1989, c 275, s. 4; Family Law Act, RSPEI 1988, c F-2.1, s. 4; Family Law Act, RSNL 1990, c F-2, s. 40(1); Family Property and Support Act, RSY 2002, c 83, s. 38 (1) (h); Family Law Act, SNWT 1997, c 18, s.18 (1) (g); Family Law Act, SNWT (Nu) 1997, c 18, s. 9 (g). Ethics and professional practice Chapter 1 – Legal framework governing life insurance 17 Grounds for divorce are controlled by the Divorce Act41 and the right to spousal and/or child support payments on divorce also arises under the Act. Less commonly, marriages are annulled, meaning they are legally treated as never having been in effect. In either case, the main legal effect is the same: the marriage is dissolved and the divorced or unmarried persons are free to remarry. Since property rights are under provincial jurisdiction, most changes to financial status (except child support resulting from a divorce) arise from provincial and territorial legislation. The effect of a divorce or separation on insurance needs analysis and beneficiary designation planning is an increasingly complex and important part of insurance law. 1.2.6.1 Family property All provinces have laws that attempt to determine how spousal wealth and property will be divided when a relationship comes to an end through separation, divorce, or in some cases, death.42 Division may depend on when the property was acquired, and from what source.43 The phrase “family property” variously implies property that was acquired during the marriage, or is used or enjoyed by the family of married spouses, or that generates income that supports the family. Ownership of family property is presumed subject to equal division when the married spousal relationship breaks down, but subject to a judge’s discretion. In contrast, property that was acquired prior to the marriage (or relationship), or that came from an inheritance during the marriage, usually gets protection from division. The rules are specific to the particular jurisdiction where the couple resides when the relationship ends. Rights to spousal support are separate from, and additional to, a right of property division. All of these rights given by statute may be modified by competent adults who enter into a contract by which they modify or even give up rights. 1.2.7 Wills, estates and successions The term “succession law” applies to the body of provincial law that deals with deceased persons’ estates and the rules governing property-passing as a result of a death. The collection of property and property rights that the deceased owned is referred to as their “estate.” All the 41. Divorce Act, RSC 1985, c 3 (2nd Supp.). 42. Family Law Act, RSO 1990, c F.3; Family Law Act, SBC 2011, c 25; Family Law Act, SA 2003, c F-4.5; The Family Property Act, SS 1997, c F-6.3; Family Property Act, CCSM c F25; Marital Property Act, SNB 2012, c 107; Matrimonial Property Act, RSNS 1989, c 275; Family Law Act, RSPEI 1988, c F-2.1; Family Law Act, RSNL 1990, c F-2; Family Property and Support Act, RSY 2002, c 83; Family Law Act, SNWT 1997, c 18; Family Law Act, SNWT (Nu) 1997, c 18. 43. Excerpt from the Government of Saskatchewan’s website on the Family Property Act. The Family Property Act establishes as a general rule that each legally married spouse, common law spouse and same sex spouse is entitled to an equal share of their family property, subject to the exceptions, exemptions and equitable considerations set out in the Act. For example, property acquired before the commencement of the relationship is exempt from distribution: http://www.http://www.publications.gov.sk.ca/details.cfm?p=535. Ethics and professional practice Chapter 1 – Legal framework governing life insurance

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