A British Columbia company's attempt to block a regulatory statement about automobile insurance has failed, leaving the industry regulator's interpretive authority intact.
The Supreme Court of British Columbia dismissed LGM Financial Services Inc.'s petition on December 8, rejecting claims that the British Columbia Financial Services Authority overstepped its bounds when it issued guidance earlier this year.
At the heart of the dispute was Regulatory Statement 24-008, released by BCFSA on April 25, 2024. The statement clarified that automobile insurance covers loss or damage from fortuitous events, including theft, motor vehicle accidents, or damage to glass, paint, or other vehicle parts.
LGM sells appearance protection and defect coverage products through car dealerships across the province. The company administers contracts between consumers and vehicle manufacturers, covering aesthetic wear and tear issues like paint damage and inherent manufacturing defects. These service contracts make up roughly a quarter of LGM's British Columbia revenue.
The company argued BCFSA had unlawfully rewritten the rules by adding examples of what counts as automobile insurance, expanding beyond the definition found in provincial regulations. LGM also took issue with language in the statement declaring that compliance with regulatory statements is mandatory, calling it a binding order that prescribed the company's legal rights.
Justice Majawa saw things differently. The court found the statement simply illustrated what already existed in the Classes of Insurance Regulation, which defines automobile insurance as covering the loss of, loss of use of, or damage to an automobile. Adding examples of glass and paint damage from fortuitous events didn't change that definition, the judge ruled.
The mandatory language also didn't make the statement binding on its own, Justice Majawa found. Reading the passage in full context, what's mandatory is following the underlying legislation, not the statement itself. The standardized wording appears in all BCFSA regulatory statements as part of the regulator's efforts to communicate more consistently across the industry.
The court pointed out that BCFSA hasn't actually ruled whether LGM's appearance protection contracts qualify as automobile insurance. Several vehicle manufacturers entered voluntary compliance agreements with the regulator, as did LGM itself on July 23, 2024, agreeing to cease selling its SDAP product. But no formal investigation concluded and no enforcement order was issued.
LGM had also sought declarations that its contracts aren't insurance and don't fall under provincial regulation. Justice Majawa declined, saying such relief would sidestep BCFSA's statutory role in determining who's carrying on an insurance business. The court also noted the lack of evidence about marketing practices, claim patterns, and payout amounts needed to make such determinations.
The decision reinforces regulatory authority to interpret and clarify insurance legislation without crossing into rule-making territory.
