Insurance (Prudential Supervision) Bill

21 September 2009
ATTORNEY-GENERAL LEGAL ADVICE
CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990: INSURANCE (PRUDENTIAL SUPERVISION) BILL

1.   We have considered whether the Insurance (Prudential Supervision) Bill (PCO
13437/11.0) (the ‘Bill’) is consistent with the New Zealand Bill of Rights Act 1990 (‘Bill of Rights Act’).  We understand that the Bill is to be considered by the Cabinet Legislation Committee on 24 September 2009.
2.   We have concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights Act.  In reaching this conclusion, we considered potential inconsistencies with sections 14, 21 and 25(c) of that Act.  Our analysis of these potential issues is set out below.

ANALYSIS OF BILL OF RIGHTS ISSUES RAISED BY THE BILL

3.   The purpose of the Bill is to promote the maintenance of a sound and efficient insurance sector and promote public confidence in the insurance sector.  The Bill will:
o	establish a system for licensing insurers;
o	impose prudential requirements on insurers;
o	provide for the supervision by the Reserve Bank of New Zealand (the ‘Bank’)
of compliance with those requirements; and
o	confer certain powers on the Bank to act in respect of insurers in financial distress or other difficulties.

ANALYSIS OF BILL OF RIGHTS ISSUES RAISED BY THE BILL Section 14 – Freedom of expression
4.   Section 14 of the Bill of Rights Act states that everyone has the right to freedom of expression, including the freedom to seek, receive, and impart information and opinions of any kind in any form.  The right to freedom of expression has been interpreted as including the right not to be compelled to say certain things or provide certain information.[1]
5.   Freedom of expression is engaged in this Bill in two broad instances: insurers being compelled to disclose information (‘disclosure provisions’); and constraints on insurers and others to impart information (‘non-disclosure provisions’).
6.   The disclosure provisions relate to information that must be made public or provided to the Bank.  The disclosure to the public includes matters such as the insurer’s

current financial strength rating and related matters.[2] Compelled disclosures to the Bank include such matters as financial statements.[3]
^7.   ^The ^non-disclosure ^provisions ^include ^a ^prohibition ^on ^insurers ^disclosing ^or
advertising ratings from non-approved rating agencies.[4]
8.   We acknowledge that much of the information at issue may not be expressive in content and will relate to purely financial aspects of the Bank’s supervision of insurers.  Freedom of expression does not protect information that lacks expressive content.  A number of these provisions do, however, relate to expressive content and will therefore prima facie infringe the right to freedom of expression.
^9.   ^Where ^a ^provision ^is ^found ^to ^be ^prima ^facie ^inconsistent ^with ^a ^particular ^right ^or
freedom, it may nevertheless be consistent with the Bill of Rights Act if it can be considered reasonable and can be justified under section 5 of that Act.  A limitation on a right is considered justifiable where:

(a) the provision serves an important and significant objective; and

(b) there is a rational and proportionate connection between the provision and that objective.

10. The purpose of the disclosure and non-disclosure provisions is to ensure that the Bank can undertake its supervisory role and that the public is aware of the financial health of the insurer.  The provisions apply to persons within the insurance industry. We consider these to be important objectives and a justified limit on freedom of expression.

Clause 148

11. Clause 148 makes it an offence for anyone to disclose the fact of the giving of a direction under part 4, subpart 1 or 2 or that a notice has been given under clause
147. These directions relate, broadly, to where an insurer is in financial distress. Unlike the above disclosure and non-disclosure provisions, this clause applies to every person.
12. The effect of clause 148 is to expose persons (including Bank employees, the media or investors) to significant penalties if they make a prohibited disclosure. The purpose of this provision is to allow the Bank and an insurer to negotiate and implement a recovery plan in confidence where an insurer is, in general, not maintaining a solvency margin, not conducting business in a prudential manner or is failing to comply with the Act or regulations.
^13. ^We ^are ^advised ^by ^the ^Bank ^that ^confidentiality ^in ^negotiations ^of, ^and ^compliance
with, a recovery plan is vital to having the insurer approach the Bank in the first instance.  We consider that this measure is rationally connected to its purpose.
^14. ^The ^provision ^limits ^the ^right ^to ^freedom ^of ^expression ^no ^more ^than ^is ^reasonably
necessary and is proportional to the importance of the objective.  The only expression that is limited is that a direction or notice has been given.  It does not
limit any other expression in relation to the insurer subject to the direction or notice, or indeed, other actions by the Bank.  Also, it is not an offence where the bank has given its written consent for disclosure to the public generally or to those with a

proper interest in knowing about the direction or notice.  Clause 148(3) provides the
Bank may not unreasonably withhold consent.
15. Clause 148 is necessary for the maintenance of a sound and efficient insurance sector.  We consider that the limit is proportional and rationally connected to the objective of clause 148 and that, overall, this provision is consistent with the Bill of Rights Act.

Section 21 – The right to be secure against unreasonable search and seizure

16. Clause 130 provides that an investigator may, for the purposes of carrying out an investigation of the affairs of an insurer or associated person, enter or search a place if there is consent or the investigator obtains a warrant under Schedule 2 of the Bill. The grounds for issuing a warrant are specifically listed.
17. Schedule 2 sets out the general provisions relating to search powers.  Schedule 2 mirrors the search powers set out in the recent Search and Surveillance Powers Bill that was found to be consistent with the Bill of Rights Act.
18. In any event, we consider that the search and seizure powers are reasonable in light of the types of documents that might be compelled, the grounds by which a warrant may be issued and the specific search powers listed at Schedule 2.

Section 25(c) – The right to be presumed innocent until proved guilty

19. Section 25(c) of the Bill of Rights Act provides:

Everyone who is charged with an offence has, in relation to the determination of the charge, the right to be presumed innocent until proved guilty according to law.

20. This means that an individual must not be convicted where reasonable doubt as to her or his guilt exists; the prosecution in criminal proceedings must prove, beyond reasonable doubt, that the defendant is guilty. Strict liability offences give rise to an issue of inconsistency with section 25(c) because the defendant is required to prove (on the balance of probabilities) a defence to escape liability; whereas, in other criminal proceedings a defendant must merely raise a defence in an effort to create reasonable doubt. Where a defendant is unable to prove the defence, then she or he could be convicted even though reasonable doubt exists as to her or his guilt.
21. The Bill creates a number of strict liability offences.  For example, clause 80 makes it an offence for a director or employee to fail to provide such information or explanations as a specified actuary thinks necessary for the performance of the actuary’s duties.  It is a defence if the director or employee proves that he or she did not have the information required in his or her possession or under his or her control, or that by reason of their position and duties was unable to give the explanations required.
^22. ^In ^addition, ^clause ^213 ^provides ^that ^for ^any ^prosecution ^for ^an ^offence ^under ^this
^Bill ^it ^is ^a ^defence ^if ^the ^person ^proves ^that—

(a) the failure to comply with this Act was due to the act or omission of another person, or some other cause beyond the person’s control; and

(b) the person took reasonable precautions and exercised due diligence to avoid the failure.

Justification for strict liability offences

23. We consider a number of factors in determining whether strict liability offences can be justified under section 5 of the Bill of Rights Act:
^o	^the ^nature ^and ^context ^of ^the ^conduct ^to ^be ^regulated;
o	the penalty level; and
o	the ability of the defendant to exonerate themselves.
24. The Bill establishes a number of regulatory requirements for insurers.  The strict liability offences relate specifically to these requirements.  The purpose is to set minimum standards on insurers that result in more prudent conduct and a lower likelihood of default, as well as increased transparency, all designed to protect enhance policyholder confidence in the insurance sector.
25. The strict liability offences support the prudential requirements for insurers and enable effective supervision by the Bank.  The penalty level associated with the strict liability offences is consistent with other commercial law statutes.  The defendant is best placed to adduce evidence as to failure to comply with the requirements of the insurance regulatory regime and the various defences rely on information likely to
be peculiarly within the knowledge of the accused.
26. We have therefore concluded that the strict liability offences in the Bill appear to be consistent with the Bill of Rights Act.

CONCLUSION

27. Based on the analysis set out above, we consider that the Bill appears consistent with the rights and freedoms affirmed in the Bill of Rights Act.  This advice has been prepared by the Public Law Group and the Office of Legal Counsel.

Jeff Orr
Chief Legal Counsel
Office of Legal Counsel

Footnotes:

1. RJR MacDonald v Attorney-General of Canada (1995) 127 DLR (4th) 1.

2. Clause 63, 64, 65, 67, 68 and 69.

3. Clause 81.

4. Clause 70.

In addition to the general disclaimer for all documents on this website, please note the following: This advice was prepared to assist the Attorney-General to determine whether a report should be made to Parliament under s 7 of the New Zealand Bill of Rights Act 1990 in relation to the Insurance (Prudential Supervision) Bill. It should not be used or acted upon for any other purpose. The advice does no more than assess whether the Bill complies with the minimum guarantees contained in the New Zealand Bill of Rights Act. The release of this advice should not be taken to indicate that the Attorney-General agrees with all aspects of it, nor does its release constitute a general waiver of legal professional privilege in respect
^of ^this ^or ^any ^other ^matter.