Auto repairers lose bid to remove FSRA ban

Two McLaren Collision car repair workers have lost their bid to overturn a regulator’s cease and desist order against them, an order that followed a high-profile sting operation by Aviva Canada.

Aviva investigated possible insurance fraud activity in the auto repair industry in 2017. As part of the investigation, dubbed Project Bumper, Aviva arranged for two cars to be damaged in a way which simulated a collision. Damage to each car was assessed by a third-party appraiser for Aviva’s investigation.

Both cars were equipped with hidden video cameras. After staged collisions, both cars were towed to McLaren, where Aviva alleged videos of both cars showed further damage to both cars by McLaren employees Fady Rony Warda and Rony Amanuel Warda.

Aviva claims McLaren unfairly and deceptively charged the insurer to repair the additional damage to the two cars. Aviva’s allegations against McLaren and the Wardas have not been proven in court.

Based on Aviva’s investigation, made public by news program W5, Ontario’s financial services regulator issued a cease and desist order against McLaren on March 20 2020.

The order prohibits McLaren from engaging in insurance business for a period of one year. The Wardas and another McLaren employee, Michael Wetzel, are ordered to immediately cease and desist from engaging in insurance business for a period of six months. Basically, the order asks McLarens and the Wardas to stop doing any repair business that would be paid for by insurance.

The Wardas challenged the regulator’s order in the Financial Services Tribunal, saying it was an abuse of process. In particular, they argued three things:

  • Aviva’s surreptitious use of video cameras in its undercover operation violated the Criminal Code.
  • The cease-and-desist order issued by the Financial Services Regulatory Authority (FSRA) was marred by the appearance of conflict, as two FSRA executives were former Aviva executives, including Tim Bzowey and Gordon Rasbach, the author of Project Bumper and Aviva’s vice president of real estate claims and fraud management at the time.
  • FSRA’s CEO issued the order outside of a two-year statute of limitations.

The court rejected all three arguments.

On the first point, the court’s decision noted that car audio and video recordings were not examples of intercepted private communications and therefore the Criminal Code did not apply.

“Courts have repeatedly recognized that individuals engaged in commercial activities within a regulated industry are subject to a reduced expectation of privacy in regulatory investigations sanctioned under enabling legislation” , the court wrote in a decision released Wednesday.

“In this proceeding, what happened to the two cars after they were brought in for repair resulted in the insurer paying out more than the damage caused by the collision. ARSF has the power to regulate this activity and its impact on business and claimants have a reduced expectation of confidentiality in this context.

On the second point, the court noted that the cease and desist order was written by FSRA’s legal counsel, who “did not discuss the [order] with or receive instructions from Rasbach or [former Aviva Canada exec Tim] Bzowey,” who became Executive Vice President of Auto/Insurance Products for FSRA in January 2019.

Additionally, approval for the order came from Elissa Sinha, the director of the FSRA’s litigation and enforcement department, who also did not discuss the order with Rasbach or Bzowey or receive instructions from it.

The fact that the issue of appearance of bias was decided by the court suggested that Rasbach and Bzowey were not unfairly manipulating the Wardas’ right to be heard, the court found.

Finally, on the third point, the two-year statute of limitations began when FSRA’s CEO first learned of the case, the court ruled. Although the Wardas produced emails showing that internal FSRA personnel became aware of the issue after Aviva brought their attention to W5’s coverage of the sting operation, the emails do not did not show that the CEO had knowledge of these facts outside the two-year limitation period.

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