Great-West was recently held liable for the fraud of its former agent, where it permitted him to continue dealing with clients and operate from its premises for years, following termination of his agency contract for dishonest conduct. It then took the position that the former agent was an independent broker, for whom it bore no responsibility. Justice Keyser disagreed and awarded the plaintiffs $528,834 (plus interest), in compensation for funds that the former agent had misappropriated from them over a number of years.1
The agent, Gary Palmer ("Palmer"), was initially hired as an agent in 1991, and sold insurance annuities for Great-West Life ("GWL") between 1991 and 2006. The plaintiffs, Michel and Lorraine Mignault, became Palmer's clients in 1991, and with his assistance they began to consolidate their holdings exclusively into GWL products. Palmer handled transactions for the Mignaults and he continued to look after their investments.
Beginning in 1995, however, GWL was made aware of several instances of duplicitous conduct on Palmer's part towards other GWL clients. As a result, GWL terminated Palmer's agency contract. Astonishingly, however, GWL decided to permit Palmer to continue to service existing GWL clients, without any notice to them of Palmer's conduct. GWL did not inform the Mignaults of Palmer's termination; instead, Palmer was allowed to continue to service their existing GWL accounts.
Inexplicably, in 1998, GWL rehired Palmer as a broker. However, although changes were internally made at GWL to reflect Palmer's change in status, he was still identified as 'agent' on all forms sent to clients from then on.
Within months of being rehired, Palmer began to persuade the Mignaults to withdraw money from their GWL annuity accounts. The Mignaults believed that they were simply transferring money between their various GWL portfolios, when in fact they were signing their money over to Palmer and his company. In this manner, Palmer misappropriated hundreds of thousands of dollars from the Mignaults and other victims.
The Mignaults were finally notified for the first time in 2006 of Palmer's misconduct.
Palmer was eventually convicted of fraud involving the Mignaults and other clients, and was sentenced to eight years in prison.
The Mignaults then filed a civil lawsuit. As against GWL, they sought to hold GWL vicariously liable for Palmer's fraudulent activities, which resulted in the loss of over half a million dollars' worth of their retirement fund. The Mignaults argued that at all times Palmer was acting as GWL's agent, and that GWL was consequently responsible for his action.
GWL took the position that Palmer was not their agent, but was in fact in independent contractor acting as the Mignaults' agent in their dealings with GWL. Alternatively, GWL argued that if Palmer was its agent, then he was acting outside of the scope of his authority in his dealings with the Mignaults.
Ultimately, the case turned on classic principles of agency and the doctrine of "apparent authority". According to Justice Keyser,
[a]pparent authority (also called ostensible authority) exists where the words or conduct of the principal would lead a reasonable person to believe that the agent was authorized to act, notwithstanding the fact that the principal and ostensible agent had never discussed such authority. The doctrine applies regardless of whether the agent is acting in fraud of the principal, but is negated where the third party is aware of this fraud.
Citing this and other principles developed in previous case law from other provinces, notably Thiessen v. Mutual Life Assurance Co. of Canada,2 the Court ultimately found for the Mignaults. It held that it was necessary to look at the case "not from the perspective of the principal [i.e. GWL], but from the perspective of the vulnerable customer of that principal" in the context of the business being done.
Keyser J. found that by all accounts, GWL was holding Palmer out as its agent. It "cloaked [Palmer] with the attributions of apparent authority." The key facts that the Court found compelling were:
- in all communications between the Mignaults and GWL, Palmer was identified as an 'agent', including client letters, client statements, transaction statements and confirmation notices
- GWL never advised the Mignaults of the limitations of Palmer's authority as an independent contractor, because this was deemed to be internal
- GWL never advised the Mignaults that Palmer was not a true agent of GWL (in the opinion of GWL)
- GWL never advised the Mignaults that Palmer was terminated in 1996
- when Palmer was rehired in 1998, GWL never advised the Mignaults the new limitations of his authority
- based on an internal GWL investigation, it was found that other defrauded victims were under the same impression as the Mignaults with respect to Palmer's authority
This case demonstrates the readiness with which courts will find that a principal-agent relationship exists between an insurer and its agent or broker, especially in cases where clients are not aware of the true relationship between the insurer and the broker. Based on this case, it is clear that if insurers wish to guard against being found to be brokers' principals, they must be specific with their insureds as to the true nature and extent of a broker's authority vis-a-vis the insureds' dealings with him/her.
1 Mignault v. Palmer, 2013 MBQB 300 (Man. Q.B.).
2 2002 BCCA 501.
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