Electronic commerce has developed at lightning speed over the past decade. Today's consumers are increasingly at ease with the idea of using e-commerce for their transactions, whether it be on their computers, tablets or smart phones. Yet a Secor study published on March 15, 2012, (the "SECOR Study"),1 found that for [TRANSLATION] "a typical insurance consumer – the Internet is above all a source of information, and then, only one among others." The study also found that even though [TRANSLATION] "consumers use the internet extensively for banking transactions and to purchase products, including some financial products (...), 50% of consumers believe that consulting an insurance professional is essential before making a purchase."2
The study comes against the backdrop of the public consultations on on-line insurance distribution initiated by the Canadian Counsel of Insurance Regulators (the "CCIR") and the Autorité des marchés financiers (the "AMF") in January 2012 and February 2012, respectively.3 In the context of these consultations and of the CCIR and AMF's proposals, we thought it would be appropriate to provide a portrait of the Quebec legislation applicable to the on‑line distribution of insurance products.
State of the Legislation Applicable to On-Line Insurance Distribution in Quebec
The legal framework applicable to financial products and services does not specifically address on-line distribution of insurance products.
The general framework consists of the following legislation: the Civil Code of Québec ("CCQ"), the Act Respecting the Distribution of Financial Products and Services (Quebec) (the "ADFPS"), the Act Respecting Insurance (Quebec) (the "ARI"), the Consumer Protection Act (Quebec) (the "CPA"), the Act to Establish a Legal Framework for Information Technology (Quebec) (the "ALFIT"), the Charter of the French Language and the Act Respecting the Protection of Personal Information in the Private Sector (Quebec) (the "Personal Information Act").
However, the ALFIT enables and governs the technological aspects of on-line sales in general, which includes the on-line sale of insurance products.
Principles from the AFLIT
The AFLIT provides a number of basic principles regarding electronic agreements or, to use the terminology of the AFLIT, contracts recorded on "technology-based documents".
Documents vs. Information
The AFLIT distinguishes between "documents", whether on paper or another medium, and the information that they bear. A paper agreement thus consists of a "document," i.e., one or more sheets of paper, and its "information," that is, the parties' agreement, recorded on this "document," generally in the form of written or printed words.4
However, such an agreement could also be recorded on another medium, for example, one that uses electronic, magnetic or optical technology (such as an electronic file on a hard disk, a CD, or a USB key), which fall under what the AFLIT qualifies as "technology-based" media, a term that includes, and is therefore broader than, "electronic" or "digital" media.5
Having defined the aforementioned concepts, the AFLIT, using the principle of technology neutrality, goes on to establish functional equivalence between "paper" and "technology-based" documents, whereby, the legal value of a document, such as an agreement, is the same whether recorded on paper or on a technology-based medium, provided that:
- they contain the same information
- the integrity of each document is ensured
- each document complies with the applicable legal rules.6
Furthermore, the AFLIT requires that the integrity of technology-based documents be maintained in order to ensure their legal value. Integrity is ensured if it is possible to verify that (a) from the time the document was created until the time when the issue of its integrity arises (for example when submitted as evidence in litigation to ensure compliance with its obligations), the information that it contains has been maintained in its entirety and not altered, and that (b) the medium used to record the information provides stability and the required perennity to ensure the integrity of the information.7
To assess the integrity of a document, particular account must be taken of the security measures applied to protect the document from the time of its creation until the time when such assessment is made.8
Finally, the AFLIT stipulates that it is not necessary to prove that the medium of a document ensures its integrity unless the party contesting the admission of the document establishes, upon a preponderance of evidence, that the integrity of the document has been affected.9
Signature and Digital Signature
In keeping with the spirit of technology neutrality, the AFLIT doesn't establish any particular requirements for execution of technology-based documents, simply referring to the general legal regime that would otherwise apply.
Thus, Section 39 AFLIT stipulates that "[t]he link between a person and a document, whatever the medium used, may be established by means of the person's signature. A person's signature may be affixed to the document by means of any process that meets the requirements of Article 2827 of the Civil Code. A person's signature affixed to a technology-based document may be set up against that person if the integrity of the document is ensured and the link between the signature and the document was established at the time of signing and has since been maintained."
There is, therefore, no need for a signature, digital or otherwise, to ensure the legal validity of a technology-based document, such as an agreement, unless of course, a specific requirement to this effect is also set forth in the legislation. If a signature is required by law or, while not required, is nonetheless used in connection with a technology-based document, it would, be legally valid, as if it were a signature affixed to a paper document, provided that, as set forth in Article 2827 CCQ, it consists in the signatory affixing "his name or the distinctive mark which he regularly uses to signify his intention" to the document.
In this case, while typing one's name at the bottom of a technology-based document such as a Word document or an email, is theoretically sufficient, the probative force of such a signature would obviously be quite weak compared to the apposition or use of confidential data associated solely with the signatory or, even better, the combination of several pieces of confidential data, such as a confidential username and password chosen by the signatory.
While the AFLIT recognizes that "digital signatures", a concept that generally refers to the technique of asymmetric cryptography (a series of mathematical operations performed in relation to a technology-based document, which ensure its integrity and authenticity)10 and, while this process can effectively be used to "sign" a document, thus conferring strong probatory force upon the link between the document and its signatory and to the integrity of the document, it in no way constitutes a general requirement set forth by the AFLIT to transpose the traditional notion of a signature into the technological realm.
In short, by placing paper and electronic agreements on the same legal level, the concept of functional equivalence means that the parties to an agreement are free to choose the "document" type of their choice (paper or technology-based) when they enter into an agreement, provided they are in compliance with the aforementioned rules. If so, the legal value of a contract entered into on-line, particularly its capacity to be legally effective and admissible as evidence, is recognized by the AFLIT.
Other Relevant Rules of the AFLIT
In addition to the above general principles, the AFLIT sets forth certain rules that, despite having equally general application, are particularly relevant to the insurance field. These include:
- The person responsible for access to a technology-based document containing confidential information must take appropriate security measures to protect its confidentiality, such as controlling access to the document by means of a restricted view technique, or any technique that prevents unauthorized persons from accessing the information or from otherwise accessing the document or the components providing access to the document. In addition, where the information contained in a document is declared by law to be confidential, confidentiality must be protected by means appropriate to the mode of transmission, including on a communication network. Documentation explaining the agreed mode of transmission, including the means used to protect the confidentiality of the transmitted document, must be available for production as evidence, where required.11
- A person purchasing an insurance product cannot be required to acquire a specific medium or technology to transmit or receive a document, such as an offer, an acceptance or a notice, unless such requirement is expressly provided by law or by an agreement (previously and validly) entered into with that person.12
- A technology-based document is presumed transmitted, sent or forwarded where the action required to send it to the active address of the recipient has been accomplished by or on the instructions of the sender, and the transmission cannot be stopped or, although it can be stopped, is not stopped by or on the instructions of the sender.13 This could include clicking a send button or icon to transmit an offer, an acceptance or a notice,14 whether by email or using a "pre-programmed document" (as defined below).15
- A technology-based document such as an offer, an acceptance or a notice is presumed received or delivered where it becomes accessible at the address indicated by the recipient as the address where the recipient accepts the receipt of documents from the sender, or at the address that the recipient publicly represents as the address where he or she accepts the receipt of documents, such as an email address previously agreed upon by the parties for this purpose or publicly stated by the recipient,16 provided the address is active at the time of sending.17
- If an insurance product is offered on-line by means of a "pre-programmed document" such as an on-line form allowing one to obtain the product and including fields or functions that can be filled out or activated by the purchaser,18 the party offering the product must, on pain of cancellation of the transaction, see to it that the document provides instructions that allow users to promptly advise the party of any errors or contains means that allow users to avoid or correct errors. Similarly, users must be provided instructions or means to avoid receiving unwanted products or services because of an ordering error, or instructions for the return or destruction of unwanted products.19
Particular attention must therefore be paid to technological factors when developing any on-line insurance sales project. In this respect, although the AFLIT does not, for the time being, establish specific requirements for the technological particularities that must be respected to ensure the validity of on-line transactions,20 it nonetheless addresses the technology that is in fact used, for example, to assess the integrity of a document.21 It is therefore recommended that best industry practices and standards be used and adapted as they evolve.
Failure to Comply with the ALFIT
It is imperative that insurers and firms comply with the ALFIT when offering insurance products on line, as failure to do so renders the agreement unenforceable against the consumer and grants the consumer the right to terminate the agreement.
What about the ADFPS: Does it apply to Insurance Sales?
We have seen that the AFLIT governs on-line insurance sales, just as it allows any other type of on-line transaction under certain conditions. But to what degree does the ADFPS apply to on-line insurance sales?
Our response depends on the distribution method used and whether or not a representative is involved.
It is necessary to distinguish between two situations: that where the product being offered is simple and doesn't generally require the involvement of a physical person, and that where the offer involves a more complex product that justifies such involvement or entails consultation.
In its consultation document, the AMF expresses its opinion that the ADFPS applies to all on-line insurance transactions, while acknowledging that this is not the view of some stakeholders.
In our opinion, the ADFPS does not prevent a valid and enforceable insurance agreement from being entered into on-line between an insurer and a consumer without the involvement of an insurance representative, provided the other requirements of the AFLIT and the other applicable legislation are met. According to our analysis, the entire transaction may be conducted using electronically-provided questions and answers without the involvement of a physical person.22 This would be a direct sale not involving an intermediary, to which the ADFPS does not apply.23
We agree that it is nonetheless part of good insurance distribution practice to involve a representative, whether (a) after the transaction has been completed, to identify obvious errors in the answers provided by the consumer, or (b) to answer client questions during the process of entering into the insurance contract in so that their consent is informed and not vitiated by error or by the document.24 The foregoing analysis supports the conclusion that, on-line selling is much less appropriate for more complex insurance products, which explains the scarcity of on-line selling of health and life insurance products. Finally, according to the SECOR Study, on-line insurance sales without a representative being available could also fail to meet consumer expectations.
What Are the Representative's Obligations in On-line Insurance Distribution?
If an insurance representative is involved in the distribution of an insurance product, whether by telephone, email, or in person, the ADFPS could apply, depending on the circumstances.
If the representative responds to a specific question regarding the insurance product or agreement, he or she could be required to comply with the following provisions, among others:
- Section 27 ADFPS – obligation to personally gather information
- Article 28 ADFPS – obligation to describe the product
- Article 32 ADFPS – obligation to disclose if he or she acts solely for the insurer or is bound by an exclusive contract with a single insurer
- Article 39 ADFPS – when renewing an insurance policy, the obligation to take the necessary steps to ensure that the coverage provided corresponds to the client's needs
- Sections 10 and 12, Regulation No. 2 – obligation to communicate certain information to the client.
An insurance representative who has a consumer purchase a product could be subject to the following obligations, among others:
- Article 26 ADFPS – obligation to disclose business relationships
- Section 16, Regulation No. 2 – obligation to provide certain information when the person is taking out an individual personal insurance product or an individual annuity
- Article 18, Regulation No. 2 – obligations applicable to replacement of a policy
- Article 4.14, Regulation No. 3 – obligations applicable to offering to enter into an individual variable insurance contract
If, however, representatives only provide general information on the insurer or on the use of the insurers' website, they would not be subject to the ADFPS, as they are not providing insurance nor consulting consumers in insurance matters.25
In addition to the other good practices suggested by the AMF consultation document, we have included below further practices which we believe should be seriously considered when setting up an on-line insurance sales site. This is not a comprehensive list and should be adapted to each product and the particularities of the distribution method used:
(a) Once the contract has been entered into, with or without the involvement of an insurance representative, it should also be determined whether the other events pertaining to the contract's life cycle, such as amendments, communication of additional risk, or termination, should also be made on line.
(b) A hyperlink to the terms and conditions of sale should be displayed on each page.26
(c) Questions to enable immediate identification of situations where the consumer would not be able to complete the contract on line should be provided at the beginning of the on-line questionnaire.
(d) Tabs or bullets allowing consumers to properly understand the questions and the scope of the required answers should be provided so that consumers receive the same type and qualify of information as would be provided to them by an insurance representative.
(e) Consumer responses should be obtained for each question. A step-by-step or subject-based approach is recommended. It should be impossible to move on to the next page until all fields have been completed.
(f) Before signing the agreement, the consumer should have the opportunity to disclose any circumstances that could significantly influence the insurer in determining premiums.
(g) A copy of the agreement and the proposal should be sent to the consumer.27
(h) It could be useful to create a client account that required a user name and password selected by the user as well as information on payment methods.
We hope that you will find this information useful when submitting your comments regarding the CCIR and AMF consultations currently underway. All comments pertaining to the CCIR and AMF consultation documents must be submitted before April 27, 2012 and May 24, 2012, respectively. Our analysis leads us to conclude that, depending on the type of product involved, some of the proposals set forth could be onerous for insurers or brokers and could impede their offer. Perhaps it is appropriate to introduce greater nuance to the rules applicable to different types of products. The experience and expertise of those working in the industry will be of great use in the regulatory authorities' deliberations in this respect. Finally, the findings of the SECOR Study regarding the importance that consumers place on consulting an insurance professional before making a purchase are equally important to consider. We are available to discuss the CCIR and AMF consultation documents with you and to assist you in developing your on-line insurance distribution project and ensuring its compliance with the applicable legislation.
1. Louis Regimbal, Assurance de dommages et Internet: Sondage sur les préférences et les perceptions des consommateurs, March 15, 2012.
2. Ibid, p. 2.
3. Electronic Commerce in Insurance Products, document developed by the Electronic Commerce Committee of the Canadian Counsel of Insurance Regulators, January 2012. Internet Insurance offerings in Québec, document developed by the Autorité des marchés financiers, February 2012.
4. Sections 3 and 4 AFLIT.
5. Section 1 (2) and Section 3 in fine AFLIT.
6. Sections 9 to 16 AFLIT.
7. Sections 5 and 6 AFLIT.
8. Section 6 AFLIT.
9. Section 7 AFLIT.
10. See the analysis and commentary of the Centre de recherche en droit public of the Université de Montréal hereinafter the "CRDP analysis".
11. Articles 25 and 34 AFLIT.
12. Article 29 AFLIT.
13. Article 31 AFLIT.
14. CRDP analysis.
15. Supra, Note 13.
16. Supra, Note 14.
17. Supra, Note 13.
18. CRDP analysis.
19. Section 35 AFLIT.
20. Sections 8, 12, 15 and 67 and seq AFLIT.
21. Section 6 AFLIT : "[...] To assess the integrity of a document, particular account must be taken of the security measures applied to protect the document throughout its life cycle."
22. See in particular Articles 1385, 1387 and 1388 CCQ.
23. Articles 25 and 34 AFLIT.
24. Article 1339 CCQ. An error that relates to the nature of the contract or anything that what and determining consent vitiates, (Article 1400 CCQ). Article 1401 CCQ.
25. Sections 3 to 6 ADFPS.
26. Finding drawn from the Supreme Court of Canada decision in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34.
27. Article 2400 CCQ and Sections 28 and 29 AFLIT.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.