Clarifying Nativelands: What the decision means to brokers

Canadian Underwriter published an article on Sept. 19, 2023, entitled “Court draws distinction between a brokerage and a consultant.”

The article deals with an important decision of Ontario Superior Court Justice Edward Morgan released on July 25, 2023. The matter involved an injunction motion brought by our client, an insurance broker named Nativelands Specifics Claims ‎Group Ltd., against certain defendants, including Justice Risks Solutions Inc., its owner Scott Smith, and former employees of Nativelands, including Cynthia McDonald.

The term “Nativelands” in this article applies to the following companies: Nativelands LLP is a licensed, registered and compliant managing general agency that owns two operating companies: a compliant, licensed retail brokerage, and a registered specific claims consulting company. Nativelands LLP is governed by an Indigenous Board and is an indigenous-owned company.

Nativelands appreciates the opportunity provided by Canadian Underwriter to respond to the article on our client’s behalf. In our view, the case raises important issues of which those involved in the insurance brokerage industry should be aware.

Lift out of Nativelands program

Nativelands brought a motion for an interlocutory injunction to protect its specific claims litigation insurance program, as a result of its allegation that a former consultant and employees were unlawfully transferring the program to Justice Risks.

This is known as a “business lift out case.”

For many years, Nativelands has invested time and money to create a unique program for selling legal expense insurance to the 600 or so First Nations in Canada. Our client provides a suite of services to identify, develop and finance the litigation brought by First Nations against Canada and the provinces for breach of their treaties, which is known as specific claims litigation insurance. Nativelands’ services include expertise in structuring and investing the settlements received by the First Nations.

Nativelands alleged Justice Risks improperly used Nativelands’ confidential information and copyrighted materials to solicit and service clients; specifically, Nativelands’ services in specific claims litigation insurance were terminated through signing a Broker of Record Form in favour of Justice Risks.

The insurance company accepted the Broker of Record Forms over Nativelands’ objections. Nativelands alleged the insurance company effectively enabled a competing brokerage to use Nativelands’ confidential information and copyrighted information to solicit and service the clients.

In a nutshell, Nativelands alleged the insurance company was aiding the new brokerage to usurp the specific claims program Nativelands had established in a small, unique niche market in the Canadian insurance industry.

This injunction was primarily about protecting Nativelands’ property and insurance program to every extent possible. It would allow the brokerage to maintain the competitive position it had created for itself after developing its own expertise and property over the past several decades.

The type of confidential information and copyrighted materials alleged to have been taken and used by Justice Risks corresponded to the materials necessary to run Nativelands’ specific claims program.

This includes using Nativelands’ proprietary claims analysis, grading, and review; materials relating to the adjudication of certain ‎finance and insurance applications; budgets and claims ‎calculators; walk-away number estimates and calculations; specific claims research materials, ‎documentation and historical records that Nativelands summarized; opinions, ‎spreadsheets, drawdown forms, application forms, underwriting materials, proprietary claims analysis ‎systems, underwriting information, policy information, claim information, insurance and/or policy ‎binders, customer information, surveys; and research information recorded or assembled by ‎Nativelands, including oral testimony, historical records, treaties, Indian agent ‎reports, genealogy reports, community planning, and archival biographical and census documents.

The judge’s decision

The decision is the first instance in the Canadian insurance brokerage industry in which an insurance broker’s confidential and proprietary information has been protected by the courts against a client and the competing brokerage to which the client assigned their rights of representation.

In essence, Justice Morgan’s decision recognizes for the first time in Canadian legal history that an insurance broker is entitled to protect its development of an investment in an insurance program (such as our clients’ specific claims litigation insurance program) against the interests of clients, a competing brokerage and its employees.

The article overlooked this important legal development in the insurance brokerage industry. It seems to imply that the decision denied the majority of the relief sought by Nativelands and only “granted the latter part of the injunction – returning Nativelands’ property”.

Contrary to what was stated in the article, at paragraph 51 of the decision, Justice Morgan issued an injunction order that required Justice Risks to:

search their electronic devices and physical storage spaces for documents referred to as the “Nativelands Information;”
provide the Nativelands Information to counsel for Nativelands;
delete the Nativelands information from their electronic devices and physical storage spaces; and
to be “restrained from, whether directly or indirectly, by any means whatsoever, using the Nativelands Information for the purposes of soliciting or servicing the specific claims litigation insurance business of the clients identified.” (emphasis added).

The injunction restricted the defendants from using copyrighted materials related to our client’s specific claims litigation insurance program to solicit or service clients who had been transferred to Justice Risks pursuant to the Broker of Record Forms.

This decision should be of interest to your readers. First, Broker of Record Forms do not permit a new broker to use the former broker’s program to solicit or service clients. Second, in business lift out cases — the very cases that can threaten the existence of a broker — there are immediate and responsive remedies available to a broker to protect its insurance programs.

Clarifications

The article’s central thesis, including its title, relies entirely on certain paragraphs of the judge’s decision wherein Justice Morgan restates Justice Risks’ positions.

Restating a party’s position does not form part of the judge’s reasons or form a legal precedent. This is particularly the case where the judge then goes on to explicitly state his disagreement with the Justice Risks’ position.

This error may cause some of your readers to overlook the importance of lift outs of insurance programs as another form of wrongful competition in the insurance brokerage sector. Both parties were competitors. It was alleged one competitor resorted to an unlawful business lift out to run a program rather than develop such an important asset through investment of time, resources and expertise.

For instance, the article sets out that the court apparently found there was very little in common with the description of the business provided by Justice Risks and Nativelands. In fact, the court stated this was the position espoused by Justice Risks, and then explicitly rejected it. (see Paragraphs 10-11 of the decision.)

Moreover, the title of the article appears to imply that Nativelands are consultants. This is untrue. The judge specifically stated Nativelands “own and operate a ‎specialized First Nations Specific ‎Claims insurance business.” ‎‎(Paragraph 3 of the decision).

The title of the article also appears to imply that Nativelands are a “consultant” and Justice Risks operates a “brokerage.” The decision is clear Nativelands is an insurance broker that ‎provides a service more “consultative in nature” – just as Justice Risks does. (see Paragraphs 11-12 of ‎the decision.)

In fact, Justice Morgan explicitly expressed scepticism that Justice Risks operates “a ‎traditional brokerage,” stating ‎that “it is difficult to comprehend ‎the defendants’ description of ‎their business as being merely ‎that of an ordinary insurance ‎brokerage.” (Paragraph 11 of the decision.)

Conclusion

Nativelands appreciates the opportunity to clarify the decision. The action will continue to trial, and a judge will decide which position prevails.

Nativelands also appreciates the opportunity to describe its role in the developing First Nation legal expense insurance industry. It remains committed to continue its longstanding partnership ‎in ‎assisting Indigenous clients realize their right and ability to ‎engage in rights adjudication under ‎Article 27 ‎and Article 28 of the United Nations Declaration on ‎the Rights of Indigenous Peoples ‎‎(UNDRIP) and ‎self-determination, self-government and ‎recognition of treaties (UNDRIP, Articles 3, 4 ‎and 37), along with ‎the protection of lands and ‎territories (UNDRIP, Articles 10, 26, 27, 28, 30, and 32).‎

The right to self-determination means any given First Nation that does not want to deal ‎with Nativelands does not have to do so. This has never been about forcing clients to commit to ‎Nativelands. Rather, this is about individuals and corporations using the Nativelands program to ‎further their own agendas at the expense of First Nations.

Feature image courtesy of iStock.com/Fotostock32