Of the provinces, BC has the second highest average cost for mandatory car insurance (second to Ontario, as of 2014). And the rates continue to rise. They are projected to increase by as much as 40% over the next three years. Despite this, ICBC’s mandatory car insurance program operates at a loss, sustained in large part by profits from ICBCs optional insurance programs.
At the same time, the BC government has been paying itself dividends from ICBCs optional insurance revenue since 2010, when it reportedly legislated to allow such activity. The amount the government took from ICBC through this mechanism is approximately $1.2 billion.
Now ICBC is approaching a crisis point, with capital reserves close to dipping below the amount necessary to handle emergency scenarios. In response, the government stated it will not take dividend payments for the next three years. Even so, the decline of ICBC’s reserves is expected to continue.
[Sources: http://www.bclocalnews.com/news/403015846.html?mobile=true ; https://www.arcinsurance.ca/blog/average-car-insurance-rates-across-canadian-provinces/]
I am not familiar with the law around Crown corporations, but what strikes me is the possibility that the government would attract liability in a similar fact pattern, if ICBC were a private company, and the government were sole shareholder and director.
For example, suppose an emergency occurs, and ICBC goes into arrears. This would look like some of the cases we have seen in the course.
Recall the New York case Walkovsky v Carlton, where Carlton owned 10 cab companies, all of which were minimally insured, and did not have enough capital to cover any excess liability. In that case the court did not find Carlton liable, however Keating J offered a persuasive dissent. He ruled that shareholders should be found liable when a corporation is designed solely to abuse the corporate privilege at the expense of public interest.
Keeping ICBC afloat is certainly in the public interest. Should the government have an enhanced duty to capitalize its corporations in comparison to private companies? In other words, should the government be required to follow Keating’s reasons where private corporations are not?
Or, could this be a situation of inducing breach of contract? Suppose the emergency prevented ICBC from being able to honour insurance claims. The government would have siphoned assets away from ICBC, preventing ICBC from honouring its contractual commitments. Could the dividend payments to the government be justified as bona fide in the best interest of the company? On the facts it does not appear so. It looks like the government diverted funds necessary for the long-term interest of ICBC, violating its duty of good faith.
As I said, I do not know the law surrounding Crown corporations. I leave it as an open question whether the underlying policy of private business law is suited to scrutinizing the government’s activity here. Should we be holding our government to the same standards as private enterprises? Or higher standards? Or perhaps entirely different standards?
This was definitely thought provoking post, and I think you brought up some really interesting points regarding the applicability of corporate law principles to crown corporations and some of the inherent contradictions which arise when you attempt to do so. However, I’m not sure if Keating’s dissenting opinion can be clearly applied to your hypothetical. Keating said “…From their inception these corporations were intentionally undercapitalized for the purpose of avoiding responsibility for acts which were bound to arise as a result of the operation of a large taxi fleet…”. This speaks to questions about intentionally undercapitalizing to avoid personal liability based on acts that were ‘bound to happen’. In your scenario, I read ’emergency’ as something unexpected, not a situation that was clearly foreseeable to the point of inevitability. Even if it was ‘bound to happen’, I’m not sure what piercing the corporate veil in that situation would accomplish. Given that there are no minimum capitalization requirements for companies in Canada, I don’t think it would be necessary to apply a higher standard to crown corporations when they are already being operated for the public good.
Thanks for the response. I’m glad someone is reading my posts.
I take your point about the difference between an emergency, and something that was “bound to happen”, though I really don’t know how foreseeable this emergency is, or even what would constitute such an emergency. Maybe its something like the winter we’re having right now, resulting in a higher volume of accidents than normal. Could such a thing be reasonably foreseen? I don’t know, I’m only musing.
As for your second point, it all depends on what would actually happen should this emergency arise. Supposing ICBC lacks the funds to pay out insurance claims, would the Government bail out ICBC? Likely they would. In that case, no piercing would be necessary and the crisis would be averted. What I wonder is if it’s even possible that the Government hide behind the corporate shield and refuse to capitalize ICBC.
I’m not sure how ICBC being for the public good would reduce the Government’s responsibility to keep it capitalized. The Government has carved out a monopoly for itself on car insurance, requiring that the public rely on its services. Shouldn’t this demand a greater level of accountability? Adopting the Keating dissent would create that accountability, on the principle that Crown Corporations must be sufficiently capitalized to meet their contractual commitments (an in particular where those commitments are to the public).
As I said, in the real world I’m sure the Government would bail out ICBC, as not doing so would be political suicide. I only wonder whether the Government is legally obliged to do so, and whether or not it should be.