Martens v The Manitoba Public Insurance Corporation, 2021 MBCA 102

Citation: Martens v The Manitoba Public Insurance Corporation, 2021 MBCA 102 Date: 20211214 Docket: AI21-30-09578 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Diana M. Cameron Madam Justice Jennifer A. Pfuetzner Madam Justice Janice L. leMaistre BETWEEN : ) G. A. McKinnon and ) A. D. F. Sain EVELYN MARTENS ) for the Appellant ) (via videoconference) (Plaintiff) Respondent ) ) W. S. Gange , ) T. K. Reimer and - and - ) R.

Walichnowski ) for the Respondent ) (via videoconference) THE MANITOBA PUBLIC INSURANCE ) CORPORATION ) Appeal heard: ) June 16, 2021 (Defendant) Appellant ) ) Judgment delivered: ) December 14, 2021 COVID-19 NOTICE: As a result of the COVID-19 pandemic and pursuant to r 37.2 of the MB, Court of Appeal Rules , MR 555/88R , this appeal was heard remotely by videoconference. On appeal from 2020 MBQB 158 Table of Contents Introduction ……………………………………....................................... 3 Background ………………………………………………………........... 3 Issues …………………………………………………………..………... 4

Part 2 of the Act …………………………………………………………. 5 Analysis …………………………………………………………………. 6 Did MPI Owe a Duty of Good Faith to the Plaintiff? .………….......... 6 Does

Part 2 of the Act Create a Statutory Contract of Insurance? ...... 7 Does

Part 2 of the Act Create a Scheme of Insurance? …………....... 9 Is MPI Subject to the Duty of Good Faith Imposed on Insurers?........ 15 Did the Trial Judge Err in Finding That MPI Acted in Bad Faith? ....... 20 The Initial Stages of the Claim ……………………………………... 21

The SIU Investigation, the Charge of Fraud and the Wiebe 1 Decision …………………………………………………………….. 23 The Wiebe 2 and Arabsky Decisions .………………………….…… 25 The Strutt Decision ………………………………………………..... 28 Appeal to the Automobile Injury Compensation Appeal Commission (AICAC) ………………………………………………….………….. 28 The Haithwaite Decision ……………………………………............ 30 Reasons of the Trial Judge …………………………………….......... 32 Alleged Errors ………………………………………………………. 36 Use of the Phrases “Wiggle Room”, “Plausible Plan” and “Finest Hour” ………………………………………………………….……. 36 The Crown Memo …..…………………………………………….….. 41 The Scaletta Letter ………………………………………………….… 42 Constant Referrals to Case Managers …………….………………… 43 The Duty of Good Faith in Insurance Claims ……………………..... 45 Did MPI Breach the Duty of Good Faith? ………………………..….. 47 Late Disclosure of the Wiggle Room Email ………………………... 47 The Wiebe 2 Decision and Section 171(1) of the Act .…………….... 49 The $10,000 Kumka Offer ………………………………………..… 51 Conclusion on Good Faith ………………………………………..… 52 CAMERON and PFUETZNER JJA Introduction [ 1 ] Does the Manitoba Public Insurance Corporation (MPI) have a duty to act in good faith in administering the personal injury claim of an uninsured automobile accident victim under

Part 2 of The Manitoba Public Insurance Corporation Act , CCSM c P215 (the Act )? This is the legal issue raised in this appeal. [ 2 ] If this Court finds that MPI had a duty of good faith, MPI asserts that it did not breach its duty in its dealing with the plaintiff. [ 3 ] For the reasons that follow, we would conclude that the Act creates a scheme of insurance, that MPI is subject to the duty of good faith and that the trial judge erred in finding that MPI acted in bad faith. Background [ 4 ] In 1998, the plaintiff was a passenger in an uninsured vehicle that was involved in a serious accident.

She suffered significant physical injuries, as well as post-traumatic stress disorder (PTSD). At the time of the accident, she was a respite worker for Child and Family Services (CFS) and a team leader in a group home for mentally challenged adults. She claimed and received benefits, including income replacement indemnity (IRI), pursuant to

Part 2 of the Act . [ 5 ] Between 1998 and 2012, the plaintiff’s IRI claim was periodically reviewed by MPI based on what it perceived to be changes in her status. Importantly, in May 2003, MPI received a tip that the plaintiff was performing respite work for CFS and that she had a foster child living with her. After an investigation by MPI’s Special Investigation Unit (the SIU), her claim for IRI was terminated. She applied for an internal review of the decision to terminate her IRI. She was charged with fraud in July 2003. She was acquitted of the fraud charge by Mykle J in March 2005 (the fraud trial judge).

This led to a series of reviews and events which eventually culminated in a full, retroactive payment of IRI plus interest up to 2012. She continues to receive IRI. [ 6 ] After she received the retroactive payment in 2012, the plaintiff sued MPI claiming damages for breach of the duty of good faith in how it dealt with her claim. That action is the subject of this appeal. [ 7 ] The plaintiff alleged that the MPI officials, who reviewed her claim and made decisions denying her benefits, breached the duty on numerous occasions.

She also implicates an offer made by MPI’s in-house legal counsel, Terry Kumka. [ 8 ] In a 95-page decision, Lanchbery J (the trial judge) found that the Act created a statutory contract between MPI and the plaintiff which, like all insurance contracts, contained an implied duty of good faith. He reviewed the history of MPI’s treatment of the plaintiff’s claims for IRI and found that, on a number of occasions, MPI acted in bad faith. He awarded the sum of $348,248.22 as damages for mental distress and punitive damages. Issues [ 9 ] MPI raises four primary grounds of appeal.

[ 10 ] First, it asserts that the trial judge erred in finding it liable under a stand-alone cause of action for bad faith not recognized at law. On this issue, we agree with the plaintiff that this was not the basis for the trial judge’s finding that MPI was subject to a duty to act in good faith. Rather, it was based on his conclusion that the plaintiff and MPI were parties to a statutory contract of insurance.

We would restate this ground as whether the trial judge erred in finding that MPI owes a duty of good faith to the plaintiff. [ 11 ] The remaining three grounds of appeal are (1) that the trial judge erred in finding that MPI acted in bad faith, (2) that the trial judge’s award of punitive damages was not justified, and (3) that the quantum of punitive damages was excessive.

Part 2 of the Act [ 12 ]

Part 2 of the Act applies “to any bodily injury suffered by a victim in an accident” (at section 71(1) ) with certain exceptions. The compensation payable to accident victims under

Part 2 replaces any rights that a victim would otherwise have to bring a court action for damages against the person responsible for the accident (see

section 72). Compensation is payable to accident victims regardless of fault (see

section 73). Victims with earned income who are unable to continue to earn that income as a result of the accident are entitled to IRI until an event occurs which terminates that entitlement (see section 110(1)).

Part 2 also provides for payment of personal care, medical and related expenses. The sections of the Act referred to herein are reproduced in an appendix attached to these reasons. Analysis Did MPI Owe a Duty of Good Faith to the Plaintiff? [ 13 ] Key to the trial judge’s decision is his finding that

Part 2 of the Act created a contract of insurance between the plaintiff and MPI. His analysis on this point is limited and consists of the following (at para 116): Billingsley’s position [Barbara Billingsley, General Principles of Canadian Insurance Law , 1st ed (Markham: LexisNexis, 2008] is an insurance contract (Canadian) may be created by statute or the terms of the contract (see 3746292 Manitoba [ 3746292 Manitoba Ltd et al v Intact Insurance Company et al , 2018 MBCA 59 ], at paragraph 21). After Saskatchewan, Manitoba was the second jurisdiction to enact public automobile insurance.

It has since been joined by British Columbia and Québec. Insurance contracts in these four provinces are creatures of statute. [ 14 ] As a consequence of finding that a contract of insurance existed, the trial judge found that the well-established duty of good faith imposed on insurers in dealing with its insureds’ claims applied to MPI’s dealings with the plaintiff. [ 15 ] MPI appeals the determination that it was subject to a duty to act in good faith in administering the plaintiff’s claim. We will consider three issues raised by this argument.

First, did the trial judge err in law in finding that the Act created a statutory contract of insurance? If so, does

Part 2 of the Act create a scheme of insurance? Finally, in dealing with claims, is MPI subject to the duty of good faith which is an implied condition in contracts of insurance? [ 16 ] As each of these issues raise questions of law, they are subject to review on the standard of correctness ( see Housen v Nikolaisen , 2002 SCC 33 at para 8 ). Does

Part 2 of the Act Create a Statutory Contract of Insurance? [ 17 ] MPI argues that the trial judge erred in law in imposing the framework of an insurance contract on the parties. It asserts that he misunderstood this Court’s decision in 3746292 Manitoba Ltd et al v Intact Insurance Company et al , 2018 MBCA 59 ( Intact Insurance ) . MPI submits that

Part 2 of the Act is not a contract and none of the features of a contract are present. [ 18 ] The plaintiff agrees with the trial judge’s reasoning, analysis and conclusion that a statutory contract existed between her and MPI. [ 19 ] In finding that an insurance contract can be created by statute, the trial judge referred to Intact Insurance , a decision involving a private insurance company.

In that case, when discussing the duty of good faith, Mainella JA wrote (at para 21): At different stages of the life of an insurance contract, one of the parties may be vulnerable to the other (e.g., information advantage of an insured in negotiating the contract and the economic and technical advantage of an insurer in the claims-handling process) (see Barbara Billingsley, General Principles of Canadian Insurance Law , 1st ed (Markham: LexisNexis, 2008) at 48).

Accordingly, beyond the obligations on the parties to an insurance contract created by statute or the terms of the contract , the common law imposes a reciprocal duty of good faith. . . .

[emphasis added] [ 20 ] The trial judge’s reliance on this passage to find that an insurance contract can be created by statute is a misreading of its plain words. Mainella JA was referring to “the obligations on the parties . . . created by statute or the terms of the contract”, rather than “an insurance contract created by statute” ( ibid ). The paragraph makes no logical sense otherwise. Moreover, this becomes clear when one reads Barbara Billingsley, General Principles of Canadian Insurance Law , 3rd ed (Toronto: LexisNexis, 2020), referred to in Intact Insurance and apparently relied on by the trial judge.

Billingsley discusses the concept of good faith which she notes, “applies to all types of insurance contracts” (at p 47). There is absolutely no reference to contracts created by statute. [ 21 ] Having concluded that the trial judge misinterpreted Intact Insurance , we will nonetheless consider whether

Part 2 of the Act creates a contract of insurance. [ 22 ] A contract of insurance is still fundamentally a contract and the basic principles of contract law apply to its formation. In essence, this requires an offer, acceptance—the parties must be in agreement as to the essential terms of the contract and intend to create a binding agreement—and consideration (see Billingsley at p 51; and Denis Boivin, Insurance Law , 2nd ed (Toronto: Irwin Law, 2015) at 242). [ 23 ] There are statutes that create what could be described as a statutory contract of insurance.

Typically, these mandate a form of contract that is not subject to negotiation by the parties, but nonetheless features the basics of offer, acceptance and consideration. However,

Part 2 of the Act is not such a statute. [ 24 ] In contrast, for example, is The Crop Insurance Act , SS 1983-84, c C-47.2 , as repealed by The Saskatchewan Crop Insurance Corporation Act , SS 2012, c S-12.1 , which provides for contracts of crop insurance.

It contains provisions such as section 13(1): “An insurable person who desires to obtain crop insurance pursuant to this Act shall apply to the corporation for the insurance in the form provided by the corporation”, and section 13(2): “On acceptance of the application by the corporation, the corporation shall issue a contract of crop insurance to the insured.” [ 25 ] Rather than creating a statutory contract, the nature of the relationship created by

Part 2 of the Act is aptly described by Boivin (at p 7): . . . . . . [T]he relationship between public insurers and the people who benefit from their insurance is not a contractual relationship, in the conventional sense of the expression. The rights acquired by both parties, and their corresponding duties, are not grounded in an agreement voluntarily negotiated, but in a regulatory framework imposed upon them. . . . [footnote omitted] [ 26 ] In our view, the trial judge erred in law when he found that

Part 2 of the Act created a contract of insurance between the plaintiff and MPI. However, this does not end the analysis of whether MPI owed the plaintiff a duty of good faith. Does

Part 2 of the Act Create a Scheme of Insurance? [ 27 ] MPI’s position is that

Part 2 of the Act is a “self-contained and comprehensive statutory accident benefit scheme.” It is a social welfare program similar to workers compensation and it is not based on insurance principles. MPI argues that, while it owed the plaintiff a statutory duty to advise and assist her to receive the compensation to which she was entitled (see

section 150 of the Act ), there is no cause of action against it for any breach of this public law duty. MPI maintains that, on a proper construction of the Act and associated regulations, a “claimant” under

Part 2 is not an “insured” and insurance law principles should not be imposed in connection with claims under

Part 2. It asserts that, in administering

Part 2 of the Act , it acts as an administrative tribunal, that the only available cause of action against it would be the tort of misfeasance in public office and that this was not pled by the plaintiff. [ 28 ] The plaintiff argues that

Part 2 of the Act is a scheme of insurance. She relies on past decisions of this Court to that effect, as well as the “insuring intent” of the Legislature when it enacted

Part 2. [ 29 ] We agree with the plaintiff that the legislative history of

Part 2 of the Act supports the view that it involves insurance. The minister charged with the administration of the Act made the following statements upon the introduction of

Part 2 during the second reading of Bill 37, The Manitoba Public Insurance Corporation Amendment and Consequential Amendments Act , 2nd reading, Manitoba, Legislative Assembly, Debates & Proceedings (Hansard) , 35-3, vol 42, No 70 (26 May 1993) (Hon Glen Cummings) (at pp 3412-13): . . .

Mr. Speaker, the changes proposed by this government and as outlined in Bill 37 represent another progressive step to reinforceconfidence in Manitoba’s automobile insurance system. No fault compensation . . .. . . . In these amendments and through this bill, we are bringing a further dimension to how people will be reimbursed for their injuries as partof that automobile insurance plan. . . . . . . [emphasis added] [30] This Court has previously stated that the scheme under

Part 2 of the Act is insurance. For example, “[i]t is commonground that

Part 2 of [the Act] embodies a scheme of no-fault insurance” (McMillan v Thompson (Rural Municipality) (1997), (MB CA), 144 DLR (4th) 53 at 62 (Man CA)) and that “the [L]egislature created an all-encompassing insurance scheme”(at p 65). In Mitchell v Rahman et al, 2002 MBCA 19, Philp JA wrote, “The application of

Part 2 of the Act to the plaintiff’s action willbe determined by a broad and liberal

interpretation of the legislation, one that will not defeat the object and intent of the ‘all-encompassing insurance scheme’” (at para 48). See also Automobile Injury Compensation Appeal Commission v Constantin et al,2010 MBCA 76 at para 36; and Westmount (City) v Rossy, 2012 SCC 30 at para 31. [31] We will now consider MPI’s submission that, on a proper

interpretation of the Act and regulations, a

Part 2 claimantcannot be conceptually viewed as an insured. MPI asserts that it is significant that

Part 2 does not use the word “insured”. [32] Section 1(1) of the Act defines an “insured” with reference to the regulations. The Automobile Insurance CoverageRegulation, Man Reg 290/88R (the Regulation), contains the following (at section 1(1)): . . . “insured” means (

a) a person to whom, or in respect of whom, or to whose dependants, benefits are payable if bodily injuries are sustained by him or heras a result of the perils referred to in

Part II of this regulation and

Part 2 of the Act, whether or not he or she is named in a certificate . . . . . . [emphasis added] [33] The Regulation recognizes that a recipient of benefits under

Part 2 of the Act is an “insured” if injured by a peril asdefined in

Part II of the Regulation (see section 5(1)), which essentially includes accidental injuries sustained as a result of driving, ridingin, colliding with, entering or exiting a motor vehicle. [34] The term “claimant” (at section 70(1) of the Act) is defined in

Part 2 of the Act to mean “a person who applies forcompensation under this Part” (ibid). That term, as well as the defined term “victim” (ibid) (a person who suffers bodily injury in anaccident), are used throughout

Part 2, while “insured” is not. When one considers the definition of claimant, the distinction between thatand the definition of insured becomes clear. A claimant has applied for compensation but their claim has not yet been assessed. Oncethey have been approved for benefits, they fall under the definition of “insured” in the Regulation and in the Act (see also SaskatchewanGovernment Insurance v Schira, 2020 SKCA 88 at para 37(e) (Schira), leave to appeal to SCC refused, 39337 (14 January 2021)). [35] Put simply, the

definitions of claimant and insured refer to the same individual at different times during the claimsprocess. There is no basis to conclude that

Part 2 is not a scheme of insurance solely because of the use of the term claimant rather thanthe term insured.

[36] Next, we turn to MPI’s assertion that

Part 2 is a social welfare program like workers compensation legislation, and thatit is not based on insurance principles. MPI maintains that the duty to act in good faith does not apply to the administrator of such aprogram. [37] We do not find MPI’s submissions on this issue to be persuasive. MPI has provided a single authority in support of theirsubmission—a comment of Jeffrey Schnoor in “No-Fault Automobile Insurance in Manitoba: An Overview” (1998) 39:2-3 Les Cahiersde droit 335 (at p 339): . . . The no-fault plan of compensation for personal injuries incurred in an automobile accident is set out in

Part 2 of the [Act]. The

Part isaptly entitled « Universal Bodily Injury Compensation », highlighting the fact that the plan is essentially one of social welfare and is notbased on insurance principles. . . . [footnote omitted] [38] Even if we accept that

Part 2 of the Act is analogous to workers compensation legislation, MPI’s position that it is notbased on insurance principles is undermined by jurisprudence to the effect that workers compensation legislation is, conceptually, ascheme of insurance.

In Bell Canada v Quebec (Commission de la santé et de la sécurité du travail), (SCC), [1988] 1SCR 749, Beetz J wrote (at para 294): In general, workmen’s compensation schemes, whether in British Columbia, Quebec or the schemes in all or most of the provinces, arestatutory insurance schemes of no-fault collective liability, which replace the former systems of individual civil liability based on fault. .. . [39] Similarly, in Béliveau St-Jacques v Fédération des employées et employés de services publics inc, (SCC), [1996] 2 SCR 345, the Supreme Court of Canada described a workers compensation system as being based on “principles ofinsurance” (at para 114).

See also Pasiechnyk v Saskatchewan (Workers’ Compensation Board), (SCC), [1997] 2 SCR890 at para 24; Martin v Alberta (Workers’ Compensation Board), 2014 SCC 25 at para 51; and British Columbia (Workers’Compensation Appeal Tribunal) v Fraser Health Authority, 2016 SCC 25 at para 4. [40] Lastly, we will address MPI’s position that, in administering claims under

Part 2 of the Act, it acts as an administrativetribunal. [41] Jurisprudence on this issue from Saskatchewan is instructive, as that province has a public insurer and a no-fault systemoperating under a legislative scheme very similar to the Act. MPI argued that the system in Saskatchewan has important differences,including that its statute creates a hybrid system of no-fault and tort insurance.

However, for our purposes, we are concerned primarilywith Saskatchewan’s no-fault system which has significant parallels with Manitoba. [42] In Schira, Richards CJS, on behalf of a panel of five, considered this argument (at paras 35-36, 38): I turn first to the idea that, in deciding whether a claimant is entitled to no-fault benefits, SGI [Saskatchewan Government Insurance] actsin the role of an administrative tribunal conducting a formal quasi-judicial proceeding. There is some basis for this characterization ofthings.

SGI is a Crown corporation and deemed by s. 6 of The Saskatchewan Government Insurance Act, 1980, SS 1979-80, c S-19.1, tobe an agent of the Crown. Moreover, it administers a program, the terms of which are prescribed by statute. Nonetheless, on a more complete consideration of the situation, it is clear that the essential character of SGI’s operations in relation tothe administration of the no-fault benefit regime under the Act [The Automobile Accident Insurance Act, RSS 1978, c A-35] is that of afirst-party insurer, not that of an administrative tribunal. . . . . . .

I would not characterize the operation of the no-fault system established by the Act as involving formal quasi-judicial proceedingsconducted by SGI acting as an administrative tribunal. It is best seen as a claims administration process managed by an insurer.

[emphasis added] [43] We adopt the reasoning in Schira as equally applicable to the Act. [44] For all of these reasons, in our view,

Part 2 of the Act is best described as a scheme of insurance rather than as socialwelfare legislation. Is MPI Subject to the Duty of Good Faith Imposed on Insurers? [45] We will now address the crucial question of whether, in administering claims under

Part 2 of the Act, MPI is subject tothe duty of good faith implied as a condition of insurance contracts. This issue has not been considered before by this Court. [46] MPI strenuously argues against this proposition, maintaining that the duty of good faith should not be applied here. Itasserts that to do so would “open the floodgates” for the duty of good faith to be applied under workers compensation, Canada PensionPlan and many other government administered social welfare plans. [47] The plaintiff submits that, as a scheme of insurance, common law principles of insurance should apply to

Part 2,including the duty of good faith that arises out of the relationship between an insurer and its insured. She argues that MPI’s basicfunction, both before and after the enactment of

Part 2 of the Act, is an insurer; the Act does not purport to oust the application ofcommon law insurance principles; and the duty of good faith is consistent with

section 150 of the Act. [48] To begin, it is important to recall how the duty of good faith imposed on an insurer has been defined. In Fidler v SunLife Assurance Co of Canada, 2006 SCC 30, it was described as follows (at para 63): . . . On this threshold issue, the legal standard to which Sun Life and other insurers are held is correctly described by O’Connor J.A. in702535 Ontario Inc. v. Lloyd’s London, Non-Marine Underwriters (2000), (ON CA), 184 D.L.R. (4th) 687 (Ont.C.A.), at para. 29: The duty of good faith also requires an insurer to deal with its insured’s claim fairly.

The duty to act fairly applies both to the manner inwhich the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whetherto refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. Itmust not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargainingleverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable

interpretation of itsobligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decisionto dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself,

an act of bad faith. [49] As previously noted, the Supreme Court of Canada has stated that insurance principles, in a broad sense, apply to no-fault automobile accident legislation.

For example, in Godbout v Pagé, 2017 SCC 18, an appeal involving the no-fault provisions in theAutomobile Insurance Act, CQLR, c A-25, Wagner J (as he then was) wrote: “Such legislation ‘establishes a compensation system thatis based on the principles of insurance and no-fault collective liability, the main purpose of which is compensation” (at para 35)(emphasis added). [50] Moreover, there is authority for the view that the duty of good faith applies to public insurers in the same manner asprivate insurers.

Boivin noted, “some principles of insurance law apply to all insurance providers, irrespective of their nature. Forexample, the duty of good faith discussed in Chapters 5 and 9 applies in both private and public contexts” (at p 7). [51] In other Canadian jurisdictions, the duty on a public insurer in administering no-fault benefits has been described by thecourts as a high standard of commercial morality.

In Smyth v Szep, 1992 CarswellBC 3 (CA), leave to appeal to SCC refused, 22913 (20August 1992), the Court wrote, “The community should, in my view, be taken to expect adherence to a high standard of commercialmorality of a Crown corporation exercising a monopoly function of this sort in settling claims with members of the public which itserves” (at para 31). [52] In our view, the obligation to act in accordance with a high standard of commercial morality is functionally equivalentto the duty to act in good faith. [53] Interestingly, the obligation of good faith has also been held to apply in situations where an individual was not in acontractual relationship with a public insurer, but was nonetheless treated as an insured.

It was the establishment of a relationship ofinsurer and insured that resulted in the obligation to act in good faith. For example, see ICBC v Hosseini, 2006 BCCA 4 at para 60. Similarly, there are other examples where plans which did “not take the form of an insurance contract” (Meleshko v Alberta, 2012 ABQB787 at para 2) nonetheless obligated the government insurer to act in good faith. [54] Finally, we will consider

section 150 of the Act, which states: Corporation to advise and assist claimants

150 The corporation shall advise and assist claimants and shall endeavour to ensure that claimants are informed of and receive the compensation to which they are entitled under this Part. [ 55 ]

Section 171 of T he Automobile Accident Insurance Act , RSS 1978, c A-35 , is virtually identical to

section 150 of the Act . That

section was considered in Schira (at para 39 ): This, of course, does not mean SGI [Saskatchewan Government Insurance] is entitled to act arbitrarily or to pay or not pay benefits as it sees fit. Its actions are ultimately governed by the terms of the Act [ The Automobile Accident Insurance Act , RSS 1978, c A-35] that prescribe no-fault benefit entitlements and, in administering that regime, it is constrained by the obligation of good faith and fair dealing common to all insurers.

Further, s. 171 of the Act sets out what might be called a statutory version of the duty of good faith by stating “(SGI) shall advise and assist every claimant and shall endeavor to ensure that every claimant is informed of and receives the benefits to which the claimant is entitled”.

All of this means that SGI is required to deal with claims fairly, both with respect to the manner in which it investigates and assesses them, and with respect to its decisions as to whether or not to pay benefits [citations omitted]. [emphasis added] [ 56 ] Once again, the highly persuasive reasoning in Schira is, in our view, determinative of this issue. [ 57 ] We conclude that, i n light of both the duty of good faith “common to all insurers” ( Schira at para 39 ) and the wording of

section 150 of the Act , there is a pervasive duty of good faith on MPI. In other words, we agree with the submission of the plaintiff that: . . . The existence of s. 150 supports the conclusion that the Legislature did not intend to remove MPI’s duty of good faith to its insureds. Rather, the obligations imposed on MPI in s. 150 are complementary to the existing duty of good faith owed by MPI to its insureds at common law. . . . [ 58 ] Moreover, there are broad policy reasons supporting the recognition of MPI’s duty to act in good faith in administering claims under

Part 2 of the Act . [ 59 ] First, to do so is consistent with recent Supreme Court of Canada jurisprudence regarding good faith obligations in contractual performance ( see Bhasin v Hrynew , 2014 SCC 71 ; CM Callow Inc v Zollinger , 2020 SCC 45 ; and Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 ). Indeed, the duty of good faith was recognized in the performance of insurance contracts well before its extension to other types of contracts. [ 60 ] Lastly, here we have a government insurance monopoly administering a scheme of insurance that is imposed on the public by law.

While the public automobile insurance system provides many benefits to Manitobans, freedom to contract with their insurer of choice is not one of them. In our view, it would be an arbitrary distinction to find that MPI is exempt from the duty to act in good faith imposed on other insurers merely because its relationship with its insureds under

Part 2 of the Act is not based in contract. Arguably, the fact that members of the public are a captive market and do not have freedom of choice of insurers is a highly compelling reason to hold MPI to a “high standard of commercial morality” ( Smyth at para 31). Did the Trial Judge Err in Finding That MPI Acted in Bad Faith? [ 61 ] Having found that a duty of good faith exists, albeit for different reasons than the trial judge, we now consider whether he erred in finding that MPI acted in bad faith. [ 62 ] In its factum, MPI points out numerous errors in the trial judge’s finding of facts.

However, it points to six errors that it submits were palpable and overriding and were key to the finding of bad faith. In order to understand the alleged errors, it is necessary to examine the background facts in significantly more detail. The Initial Stages of the Claim

[ 63 ] There is no question that the plaintiff suffered both physical and psychological injuries as a result of the collision on December 4, 1998, and that she was entitled to receive benefits pursuant to

Part 2 of the Act , including IRI. [ 64 ] Initially, the IRI to which she was entitled was based on her actual employment as a team leader in a group home and a respite worker for CFS. On July 16, 1999, her then case manager retroactively increased the plaintiff’s IRI based on the finding that she had a “promised job” as a foster parent running a group home that would consist of four young persons in her residence.

The plaintiff’s IRI entitlement was calculated on her gross yearly employment income (GYEI) based on that job. [ 65 ] MPI hired a psychiatric nurse, Claudette Dupont (Dupont) to take over day-to-day interactions with the plaintiff in early 1999. However, decisions regarding the plaintiff’s entitlement to benefits continued to be made by MPI. [ 66 ] By 2002, it was agreed that the plaintiff was both physically and psychologically able to return to work. In a letter dated February 28, 2001, her treating psychiatrist, Dr.

Graham, indicated that she was prepared and had “already initiated the process of returning to . . . work” and that her plan to run a group home was “viable.” In a letter dated March 12, 2001, Dr. Campbell, the physician treating the plaintiff for her physical injuries, indicated that she was able to return to work depending on the type of employment.

However, due to her physical disabilities, opening a group home would not be realistic. [ 67 ] After an assessment was completed, it was found that, while the plaintiff was not capable of working in her promised job, she could hold alternative employment as a “community and social service worker”. On November 8, 2002, her then case manager Bryan Wiebe (Wiebe) sent a decision letter to the plaintiff advising that a two-year determination under

section 107 of the Act was to commence on December 4, 2002. During the first year of the two-year determination period, it was the plaintiff’s responsibility to enter a one-year job search. After the one-year job search, her entitlement to IRI would be assessed on the basis that she was holding her determined employment whether or not she was in fact doing so. [ 68 ] On April 30, 2003, as a result of a random call to check on the status of her progress on the two-year determination, the plaintiff advised Wiebe that she had not been working. [ 69 ] Wiebe then confirmed with Dr.

Graham that the plaintiff was now suffering from symptoms of PTSD, such that she was extremely disabled. In a report of investigation dated May 27, 2003, Wiebe indicated that he was prepared to extend her one-year job search until she was capable of returning to work, thereby extending the period of entitlement to full IRI.

Unbeknownst to Wiebe at the time, but later discovered by MPI, was that in April 2003, the plaintiff suffered a significant relationship breakdown with her then husband after learning that he was a convicted pedophile. [ 70 ] The events dealing with the recurrence of the plaintiff’s PTSD will be referred to as the relapse issue. It was not followed up by Wiebe based on the series of events which followed.

The SIU Investigation, the Charge of Fraud and the Wiebe 1 Decision [ 71 ] On May 20, 2003, MPI received a tip that the plaintiff had been working for CFS, taking children into her home and working at another group home. The SIU of MPI investigated the tip. Several witnesses were interviewed. It was confirmed that, between November 30, 2000 and May 13, 2001, the plaintiff fostered a child in her home for which she was paid by CFS and that she had been doing respite work at other group homes for which she was also being paid.

These all occurred prior to her relapse. [ 72 ] In July 2003, the SIU interviewed both Dupont and the plaintiff separately. While Dupont stated that the plaintiff did not tell her that she had been working, the plaintiff advised the SIU that she had told Dupont.

In response, the SIU obtained a signed statement from Dupont wherein she stated that she “was never aware that [the plaintiff] had a foster child in her care” and that the plaintiff “was aware that she had to declare any income to MPI.” [ 73 ] The results of the SIU investigation were considered by MPI’s Fraud Advisory Committee which instructed Wiebe to terminate her benefits on the basis of

section 149 of the Act (failing to tell MPI that she had returned to work) and the relevant parts of

section 160 of the Act (knowingly providing MPI with false information). This was done by Wiebe by way of a decision letter dated July 23, 2003, terminating the plaintiff’s eligibility pursuant to sections 149 and 160 (

a) of the Act for all

Part 2 benefits, including IRI (the Wiebe 1 decision). [ 74 ] The SIU engaged in further investigation after the plaintiff had been charged with fraud on July 25, 2003. Of relevance is that, in response to a request from the Crown, the SIU attempted to interview Dr. Graham to determine what he meant in his February 28, 2001 report wherein he stated that the plaintiff had already “initiated the process of returning to the work place.” Citing privilege and doctor-patient confidentiality, Dr.

Graham refused to disclose his knowledge in that regard absent a consent form from the plaintiff. [ 75 ] In August 2003, the plaintiff applied for an internal review of the Wiebe 1 decision. The internal review file was assigned to Tom Strutt (Strutt). Strutt was a lawyer in MPI’s legal department, but testified that he was not acting in such a capacity in his role as an internal review officer (IRO). Strutt advised the plaintiff’s counsel for her criminal charge proceedings that his review of the file would be deferred until the criminal proceedings had been concluded.

Understandably, the plaintiff’s counsel did not object to the delay. [ 76 ] On March 24, 2005, the plaintiff was acquitted of the fraud charge. In brief oral reasons, the fraud trial judge found that the plaintiff reported both types of work to Dr. Graham and that, in general terms, Dr. Graham reported to Dupont. [ 77 ] The fraud trial judge also found that “Dupont had reported to her by the [plaintiff] the jobs that [the plaintiff] had and did no follow-up”. He attenuated his finding by stating that, “[i]n fairness to [Dupont], this could, in fact, be a case of misunderstood

communication or miscommunication”. [ 78 ] After the trial, on March 29, 2005, the Crown wrote a memorandum to the SIU describing the trial and explaining what it perceived to be problems with the evidence and recommending better practices that would assist in criminal prosecutions in the future (the Crown memo). The Wiebe 2 and Arabsky Decisions [ 79 ] Regarding the review of the Wiebe 1 decision, on April 12, 2005, Strutt sent an email to Wiebe wherein he stated that MPI was likely “issue estopped” regarding the question of whether the plaintiff disclosed her return to work.

He advised Wiebe that it was his intention to overturn the Wiebe 1 decision, but that he did not want to be “precipitous about this” and asked Wiebe to let him know if there was any “wiggle room” (the wiggle room email). [ 80 ] The wiggle room email was not disclosed to the plaintiff until Strutt testified about it during the trial as MPI’s counsel considered it to be subject to solicitor-client privilege. [ 81 ] After receiving the wiggle room email from Strutt, Wiebe unilaterally decided to rescind the Wiebe 1 decision.

After obtaining an IRI calculator report, which indicated that the plaintiff’s earnings during her return to work exceeded the amount she was entitled to based on the earlier GYEI calculation for the promised job, he assessed the plaintiff’s entitlement to IRI. [ 82 ] On April 28, 2005, Wiebe sent a second decision letter to the plaintiff rescinding the Wiebe 1 decision and making a fresh decision based on new information pursuant to

section 171 of the Act . He advised the plaintiff that she was not entitled to IRI under section 110(1) (

a) of the Act in that she had demonstrated the ability to hold the employment she had at the time of the accident and that she had earned income equal to or greater than her determined GYEI pursuant to section 110(1) (

e) of the Act (the Wiebe 2 decision). Neither the Wiebe 1 nor Wiebe 2 decisions addressed the effect of the relapse issue on the plaintiff’s entitlement to IRI. [ 83 ] In his testimony, Wiebe stated that he was of the belief that the change in circumstances consisted of MPI learning that Dupont had information in her handwritten notes that, if investigated, would have revealed that the plaintiff had returned to work and that Dupont had not disclosed this to MPI. [ 84 ] After she was acquitted of the fraud charge, the plaintiff hired a civil lawyer, Murray Trachtenberg (Trachtenberg), to handle her claim.

Although he did not file a formal application for review of the Wiebe 2 decision, he indicated in a letter to Strutt that he wished a review of the Wiebe 2 decision, as well as the Wiebe 1 decision. It was his view that there was no jurisdiction for Wiebe to rescind the Wiebe 1 decision as there had been no change in circumstances pursuant to section 171(1) of the Act . [ 85 ] In addition, an issue arose as to the relapse suffered by the plaintiff in April 2003. As earlier stated, that matter was not dealt with in the Wiebe 2 decision.

The question was whether Strutt had the authority to review the relapse issue when no decision had been made on it by a case manager. [ 86 ] Based on the above, Strutt referred the relapse issue to the plaintiff’s new case manager Dwayne McFaddin (McFaddin) who, after a review of the plaintiff’s file, determined that updated medical information was required.

In July 2005, he negotiated an agreement with the plaintiff through Trachtenberg pending MPI’s investigation and determination of the relapse issue (the McFaddin- Trachtenberg agreement). [ 87 ] Included in the agreement was that Strutt’s review of the Wiebe 2 decision was to be put on hold while MPI obtained updated medical information, and that the plaintiff attend an independent psychiatric examination, after which MPI would issue a decision either confirming the Wiebe 2 decision or “substitut[ing] the proper decision for it.” In return, MPI would partially reinstate the plaintiff’s IRI benefits until a decision was made as a gesture of good faith and with no expectation of recovering the funds should she be found to be either able to work or incapable of working due to PTSD that was unrelated to the motor vehicle accident. [ 88 ] While the information was being gathered, the plaintiff was assigned a new case manager, Holly Arabsky (Arabsky).

She also requested Dr. Graham’s clinical notes. These notes would have assisted MPI in determining whether he was aware of the plaintiff’s significant marital issues when he wrote his report in 2003 indicating that she was unable to work due to a relapse in her PTSD caused by the accident. In his response, Dr.

Graham indicated that the plaintiff did not consent to the release of her entire file, but only to him writing a report. [ 89 ] On December 20, 2005, Arabsky wrote a decision letter to the plaintiff wherein she found (1) that there was no new information which affected the Wiebe 2 decision, (2) that the plaintiff was capable of working, and (3) that her psychological symptoms were not related to the accident and, therefore, the plaintiff was not entitled to IRI (the Arabsky decision). At the time that she provided her decision, Arabsky was in possession of reports from 2005 from Drs.

Graham and Campbell and an independent psychiatric report from Dr. Etkin. She also had an informal review of the medical information conducted by Dr. Jones, as well as a physical demands analysis. The Strutt Decision [ 90 ] Next, Strutt conducted his review of the Wiebe 2 and the Arabsky decisions and issued his decision letter on May 24, 2006 (the Strutt decision). He dealt with the plaintiff directly for his review as she was no longer represented by counsel. She continued to refuse to consent to Dr.

Graham providing his clinical notes. [ 91 ] Strutt upheld the Wiebe 2 decision on the basis that the plaintiff was able to work and that section 110(1) (

a) of the Act applied. He found that she was capable of working at least until the relapse in April 2003. He confirmed the Arabsky decision regarding the relapse issue, stating that he preferred the evidence of Dr. Etkin over Dr. Graham that the psychological reasons underlying her inability to work at that time were unrelated to the accident. Consistent with his position throughout, Strutt did not deal with the Wiebe 1 decision as he was of the view that it was rescinded by the Wiebe 2 decision.

Appeal to the Automobile Injury Compensation Appeal Commission (AICAC) [ 92 ] The plaintiff appealed the Strutt decision to the Automobile Injury Compensation Appeal Commission (AICAC). She was represented by an independent claimant advisor, Nicole Napoleone (Napoleone). As a result of a report dated January 15, 2009, in which Dr. Graham indicated that the plaintiff was no longer psychologically disabled, the plaintiff decided to consent to the release of his clinical notes. Based on his review of Dr. Graham’s notes, Dr.

Jones reversed his opinion—finding that the relapse was a recurrence of the PTSD symptoms that the plaintiff experienced from the accident. [ 93 ] Counsel for MPI, Mr. Kumka (Kumka), provided Dr. Jones’s report to Napoleone and the AICAC. [ 94 ] After investigations into when the relapse ended, Kumka offered to “resolve this matter on the basis of [the plaintiff’s] receipt of further IRI benefits during the relapse period from April 7, 2003 to November 7, 2007”, in the amount of $10,645.63 (the $10,000 Kumka offer). The offer was stated to be in exchange for a “[f]inal [r]elease”.

However, it did not state what it would be a final release of. Clearly, it did not involve the plaintiff’s claim for medical expenses, as Kumka asked if she was prepared to waive those. Unfortunately, Kumka was never examined about the issue, as he had a terminal illness and died prior to the trial. [ 95 ] The offer was rejected by the plaintiff. The parties could not agree on when the relapse ended or what the proper amount of IRI was owing for the relapse period.

Therefore, they agreed to send the issue for determination by a case manager, so that it could go through the process and become part of the AICAC appeal, if an agreement could not be reached. [ 96 ] In a decision letter dated May 5, 2010, Dawn Sladek (Sladek), the case manager responsible for determining the relapse issue, provided a new decision based on her review of the new information contained in Dr. Graham’s notes. She found that the plaintiff suffered a relapse between April 7, 2003 and November 7, 2007, during which time she was entitled to full IRI (the Sladek decision).

Based on the same IRI calculation that was used by Kumka, she concluded that the plaintiff was entitled to $10,645.63. This amount is the difference between the total amount paid from December 2000 to the Sladek decision and the amount payable during the relapse period. Of note, the calculation of the total amount paid from December 2000 to the Sladek decision included all of the IRI paid to the plaintiff after December 1, 2000 when her payments were terminated. That amount included payments made under the McFaddin- Trachtenberg agreement.

The decision also rescinded the portion of the Wiebe 2 decision, which stated that MPI would not be attempting to claim funds paid to the plaintiff after December 1, 2000. In her decision letter, Sladek stated that was to prevent a double recovery. [ 97 ] We pause to note that much later, in December 2011, Napoleone identified an error in the IRI calculation used by Kumka and Sladek for the relapse period.

As a result, MPI performed a new calculation increasing the amount payable to the plaintiff for the relapse period and advising the AICAC of this new development. [ 98 ] In the meantime, the Sladek decision was reviewed and confirmed by an IRO, Lynne Nixon (the Nixon decision). The plaintiff appealed the Nixon decision and it was added to the AICAC appeal. The Haithwaite Decision [ 99 ] The AICAC appeal was scheduled to be heard in June 2012. At that time, the issues had been narrowed from five to two. They were (

a) whether the plaintiff was capable of returning to her pre-accident employment as of December 1, 2000, and (

b) whether MPI was entitled to seek reimbursement of the IRI benefits paid to her between December 1, 2000 (the date she was found to have become a foster parent and respite worker for CFS) and April 7, 2003 (the date of her relapse). [ 100 ] Shortly before proceedings before the AICAC were set to commence, Robert Haithwaite (Haithwaite)—the then executive director for bodily injury claims—reviewed the file, as it was common for him to do so.

He decided to resolve the issues subject to the AICAC appeal and issue payment to the plaintiff of full retroactive IRI for the period from December 1, 2000 to the then current date (the Haithwaite decision). [ 101 ] Haithwaite testified that, in reaching his decision, he considered that the plaintiff’s promised employment with CFS was for four foster children rather than one and that, normally, when a claimant goes back to work, MPI hires an occupational therapist to help determine how much of their job they can do.

However, in hindsight, because of the fraud charges, two years went by during which MPI did not do that. He stated: . . . So she’s got -- so the question would be is, you know, is she still disabled in December 2000? Given the information that I read, was put in front of me, my reading the file and reviewing it.

Even though, she’d gone back for work for a period of time, when I know what -- what kind of evidence we need to have in front of AICAC, I made a decision that I felt that she would probably in all likelihood still be considered disabled in December of 2000, even though she had worked a bit, but with family supports and had only had one child, not the four. So on a -- not balance of probabilities, but on a -- on a tough call, one way or the other, I felt she would still be disabled and, as such, I directed [Kumka] to resolve it and case management to pay her.

. . . [ 102 ] Payment was made to the plaintiff in the amount of approximately $316,000 plus interest. It is undisputed that the payment was in excess of the issues before the AICAC. The plaintiff continues to receive IRI. Reasons of the Trial Judge [ 103 ] In our view, it is necessary to comment on the overriding tenor of the trial judge’s reasons. He was quite critical of MPI and its officers throughout his reasons. [ 104 ] We start by noting that the trial judge stated that the decision-makers who dealt with the plaintiff’s claim were “good people trying to do their best” (at para 201).

He also found that the decision to lay the fraud charge was “reasonable” (at para 211; see also para 221). In addition, he did not find that the Wiebe 1 decision was made in bad faith. To the contrary, he held that MPI’s conduct between 2003 (the charge) and 2005 (the acquittal) was “understandable” (at para 171). [ 105 ] In contrast to these findings, the trial judge nonetheless made disparaging remarks about the decision to charge the plaintiff with fraud and the Wiebe 1 decision.

Many of those remarks were based on factual errors. [ 106 ] For example, the trial judge was repeatedly critical of MPI having failed to obtain a statement from the plaintiff prior to charging her with fraud and prior to issuing the Wiebe 1 decision stating, for example, “MPI decided to proceed under

section 160 [of the Act ] alleging fraud in the absence of critical information, being [the plaintiff’s] response to the allegation” (at para 162) and that “MPI did not assess the merits of [the plaintiff’s] claim fairly when it relied on an anonymous tip without seeking [her] input into what occurred” (at para 216). [ 107 ] This is a palpable error. As earlier explained, the SIU spoke with the plaintiff in July 2003 in order to obtain her comments regarding the fraud allegation.

This conversation, on July 7, 2003, caused the SIU to obtain a written statement from Dupont on July 17, 2003, which contradicted the plaintiff’s comment to the SIU that Dupont was aware that she was working for CFS. The fraud charge was not laid until July 25, 2003. The Wiebe 1 decision was sent on July 23, 2003. Each of these decisions was clearly made after the plaintiff had been interviewed. [ 108 ] The trial judge also criticized MPI for charging the plaintiff with fraud in the absence of the evidence of Dr. Graham, despite the fact that he specifically noted that Dr.

Graham would not release evidence to the SIU investigator or to the Crown prior to the trial (see para 142). His basis for this criticism was the letter by Dr. Graham made for Wiebe dated May 2, 2003 regarding the plaintiff’s relapse. That letter did not discuss the entire timeframe when the charge of fraud was alleged to have occurred which was between November 1, 2000 and June 5, 2002.

To the extent that it did, it stated that she had residual symptoms of her PTSD, but that she was “otherwise reasonably functional” in February and April of 2002. [ 109 ] Finally, in support of his finding that, once MPI received information that the plaintiff failed to report her earnings, “the lens by which [it] viewed her file changed” (at para 137), the trial judge criticized the Wiebe 1 decision, holding that “MPI could have denied [the plaintiff] benefits relying on

section 149 [of the Act ] for failing to report a change in circumstances, but chose

section 160 , fraud, as its basis of denial” (at para 138). This finding is in error. The Wiebe 1 decision relied on both sections 149 and 160 (

a) of the Act in terminating the plaintiff’s benefits. [ 110 ] While the above errors are not cited as grounds of appeal, in our view, they illustrate the approach that the trial judge took in his

interpretation of the actions of MPI and on which he made findings of bad faith. [ 111 ] In finding the existence of bad faith, the trial judge relied on the following: • The Strutt email to Wiebe on April 12, 2005 advising of his intention to overturn the Wiebe 1 decision and asking Wiebe to let him know if there was any “wiggle room”, and the subsequent rescission of the Wiebe 1 decision (see paras 213, 218, 224-27). • Correspondence wherein Strutt asked McFaddin for a “plausible plan” to retire the review file (see paras 203-204, 217-18, 224-27) and one email that Strutt sent to a case manager that he stated, during his testimony, was not his “finest hour” (at para 223). • The Wiebe 2 decision to deny benefits based on section 110(1) (

a) of the Act without obtaining updated information from the plaintiff and her psychiatrist or about her actual ability to work. He also criticized the manner in which Wiebe calculated the gross income from the plaintiff’s employment pursuant to section 110(1) (e) (see paras 181-87).

Also, he was critical of the fact that the Wiebe 2 decision was purported to be based on the acquisition of new information pursuant to section 171(1) of the Act , when it was not (see paras 193, 213). • His finding that MPI failed to follow up on the Crown memo (see para 172). • His finding that MPI delayed the plaintiff’s ability to appear before the AICAC by repeatedly referring her claim to a claims manager or IRO (see paras 192, 196, 200, 213, 218). • His finding that the $10,000 Kumka offer undervalued her claim (see para 213), demonstrated bad faith (see para 220) and was “most egregious” (at para 219). • His

interpretation of a letter sent by one of MPI’s lawyers, Dean Scaletta (Scaletta), to Napoleone dated October 31, 2008 (the Scaletta letter) (see paras 47, 213).

[ 112 ] To summarize, the trial judge found that MPI’s actions, from 2005 until the Haithwaite decision, were not in keeping with MPI’s duty under

section 150 of the Act to advise and assist claimants and ensure they are informed of and receive compensation to which they are entitled (see para 202). [ 113 ] He found that the totality of MPI’s actions amounted to bad faith. He stated that “[t]he actionable wrong in this case was the search for ‘wiggle room’ and a ‘plausible plan’ to deny [the plaintiff] the benefits she was entitled following [the fraud trial judge’s] decision” (at para 227).

In reaching his conclusion, he relied on Haithwaite’s ultimate decision to compensate the plaintiff as evidence that MPI was aware that its claims management decisions were inadequate. Alleged Errors [ 114 ] MPI asserts that the trial judge made numerous errors. We agree. We will only review some of the most significant ones. [ 115 ] The parties agree, as do we, that the alleged errors involve questions of fact or mixed fact and law and are to be reviewed on a standard of palpable and overriding error ( see Housen at paras 10-12, 25, 36-37 ).

Use of the Phrases “Wiggle Room”, “Plausible Plan” and “Finest Hour” [ 116 ] MPI contends that the trial judge misunderstood the evidence in respect of the phrases “wiggle room”, “plausible plan” and “finest hour”. The trial judge relied heavily on these phrases in his assessment of the evidence, mentioning them each multiple times. [ 117 ] As we stated earlier, the phrase “wiggle room” arose in the context of the email that Strutt sent to Wiebe on April 12, 2005, wherein he explained that, considering the decision of the fraud trial judge, he did not think that the Wiebe 1 decision could stand.

He then stated: . . . I don’t want to be precipitous about this, so let me know if you think there is any “wiggle room”. If not, I am considering doing a

summary Review decision overturning. I really can’t see the point of holding a hearing on any of this. . . . [ 118 ] When he was cross-examined regarding the issue, Strutt testified that he had intended to overturn the Wiebe 1 decision, but that he was requesting further information and trying to determine if there was any relevant material that had not been before the fraud trial judge. [ 119 ] The trial judge relied on this phrase to infer that decisions by MPI thereafter, were made intentionally to deny the plaintiff benefits to which she was entitled (see, for example, paras 167, 187).

He stated that “one could easily conclude” (at para 202) that the Wiebe 2 decision was the wiggle room suggested by Strutt. [ 120 ] Next, the trial judge connected the phrase “wiggle room” to an email from Strutt to McFaddin sent six months later (see paras 203-204). As earlier indicated, Strutt’s review of the Wiebe 2 decision was placed on hold while McFaddin was investigating the relapse issue and the plaintiff was receiving partial IRI pursuant to the McFaddin-Trachtenberg agreement. In that October 18, 2005 email, Strutt asked McFaddin whether his pending review file should remain open.

He stated: We haven’t had any contact on this since late July. [The system] indicates lots of activity, so I assume [the plaintiff] and [Trachtenberg] are still happy enough with the review being held in abeyance. My question has to do with whether the review [file] ought to be open at all, in its present form, at least, given that you have prospectively reinstated IRI etc. There probably are some issues that need to be reviewed, but they are not the ones set out in the [Wiebe 1] decision (the one I am supposed to be reviewing). Do you have any suggestions about getting rid of this old file.

One thought would be a review decision setting aside the [Wiebe 1] decision, while reserving a specific issue to be returned to you for a fresh decision. If you think that is a promising approach, you could be of assistance in defining the issue.

Please advise. I don’t want this review file to sit idle much longer without at least a plausible plan for eventually retiring it. . . . [emphasis added] [ 121 ] In referencing the above, the trial judge stated, “Six months after looking for ‘wiggle room’ Strutt is now looking for a ‘plausible plan’. The court finds this [is] not in keeping with the statutory obligation outlined in

section 150 [of the Act ]” (at para 204). He found that the phrases “wiggle room” and “plausible plan” used in the correspondence “explain[ed] MPI’s actions in the years that followed” (at para 218). He repeatedly referred to these two phrases as clear indicators of MPI’s bad faith (see, for example, paras 219, 225-27, 229). [ 122 ] It is clear that the trial judge interpreted “plausible plan” to mean a plan to terminate or reduce the plaintiff’s benefits, as opposed to a plan to close an open and pending review file. We note that this

interpretation was never suggested to Strutt when he testified, nor was it argued before the trial judge. [ 123 ] In reaching his conclusion, the trial judge failed to mention that Strutt had earlier indicated his desire to deal with the review before him in an efficient manner. For example, when he was advised of the McFaddin-Trachtenberg agreement, on July 25, 2005 he sent an email to McFaddin expressing his support for the approach, describing it as “eminently reasonable”. He asked McFaddin to contact him by September 26, 2005 for an update and whether he had to keep the review file open.

The October 18, 2005 email referencing a plausible plan appears to be a follow up to that email. [ 124 ] A plain reading of the October 18, 2005 email indicates that Strutt was again trying to deal with the review of the plaintiff`s file in an efficient manner, including setting aside the Wiebe 1 decision, which could only have been to the benefit of the plaintiff.

It does not evidence the nefarious intent that the trial judge ascribed to it. [ 125 ] Thus, we are of the view that the trial judge misinterpreted the October 18, 2005 email by finding that Strutt was seeking to do anything beyond closing his pending review of the plaintiff`s file. [ 126 ] Furthermore, the trial judge’s mischaracterization of Strutt’s evidence was compounded by how he dealt with a comment made by Strutt during his testimony that a certain internal communication which he authored was not his “finest hour”. [ 127 ] On May 9, 2006, Strutt was conducting his internal review of the plaintiff’s file.

He emailed the then case manager bringing to her attention what he considered to be a lack of information in the review file. In that email, he made a number of errors. When confronted at trial by the errors in that email, he admitted them and stated: . . . In all candor, this [email] was not [my] finest hour . I’m actually embarrassed by this [email]. It’s extremely wrong. I don’t know what I was thinking when I wrote it and I have to say I’m really troubled by the tone. I try to be -- I tried to be as collegial as I could with the case managers. This has got a very high-handed tone to it.

I cannot now account for what was going on. . . . [emphasis added] [ 128 ] In his reasons, the trial judge incorrectly stated that the May 9, 2006 email to the case manager was Strutt’s final correspondence to the plaintiff and that Strutt had admitted it was an abject failure (see para 80). There is no evidence that this internal email was sent to the plaintiff. [ 129 ] However, more importantly, the trial judge misinterpreted Strutt’s testimony about the email as an admission that MPI’s handling of the plaintiff’s entire claim was “not our finest hour” (at para 193) (emphasis added).

For example, in his introduction, he stated, “A representative of [MPI] described MPI’s actions, which one can only believe was a reference to Winston Churchill, ‘as not our finest hour’” (at para 5). Similarly, he later referred to MPI’s “own statement that the handling of [the plaintiff’s] claim was ‘not our finest hour’” (at para 193). He continued with this theme at paras 223, 228, 253, 278 and 288. [ 130 ] All of the above references clearly indicate that the trial judge misinterpreted the testimony of Strutt to be an admission by MPI that it mishandled the plaintiff’s entire claim.

[ 131 ] The trial judge’s continued references to and reliance on the three phrases significantly influenced his finding of bad faith (see paras 167, 187, 202, 204, 213, 218-19, 224-29). In our view, his mischaracterization of this evidence constitutes palpable and overriding errors sufficient to overturn his finding of bad faith. [ 132 ] Moreover, there are further errors that were made by the trial judge that require examination by this Court.

The Crown Memo [ 133 ] As earlier stated, on March 29, 2005, the Crown wrote the Crown memo—a memorandum to the SIU describing the fraud trial and explaining what the Crown perceived to be problems with the evidence. It recommended better practices that would assist in future criminal prosecutions, including having claimants “sign a document on a regular basis that their financial and employment circumstances have not changed.” [ 134 ] The trial judge indicated that the Crown memo “identified significant issues that should have been addressed by MPI” (at para 146).

He criticized MPI on the basis that there appeared to be no internal discussion about the issues raised by the Crown (see para 148) and that MPI ignored that the Crown had alerted it to internal problems (see para 153). He accused Strutt’s superiors of having “wash[ed] their hands of [the] file” (at para 155) on the basis that the record did not disclose any action taken by Strutt’s superiors in response to the Crown memo.

Finally, he repeatedly found fault with MPI’s failure to act upon issues raised in it (see, for example, paras 160, 167-68, 172). [ 135 ] We agree with MPI that the trial judge committed a palpable and overriding error in his

interpretation of the relevance of the Crown memo to the plaintiff’s claim for IRI benefits. The stated purpose of the Crown memo was to “assist in proving [future] criminal cases”, deter others who “walk the line” and to “protect the case managers” when they are being cross-examined. The Crown memo did not constitute a recommendation to MPI as to how to process and determine the plaintiff’s or anyone else’s claim. There was no evidence led as to what use was made of the Crown memo by MPI and the plaintiff did not argue the

interpretation that was ascribed to it by the trial judge. The Scaletta Letter [ 136 ] The Scaletta letter was written after the plaintiff had appealed the Strutt decision.

It was authored by Scaletta, a lawyer in MPI’s legal department, in response to a letter dated October 28, 2008 by Napoleone wherein she advised that the plaintiff had moved out of the province and wished to discuss “an all-inclusive settlement to resolve her many issues related to her bodily injury claim.” In response, Scaletta wrote that MPI was “not prepared to engage in the sort of discussions suggested by [her] letter,” that the plaintiff was “free” to withdraw her pending appeal if she wished, but that if she still wished to continue with her appeal, MPI would be “willing to cooperate with whatever arrangements [could] be made for an early hearing and disposition of the appeal.” [ 137 ] In describing the Scaletta letter in his recital of the facts, the trial judge incorrectly stated that in it, Scaletta “advised that the only way settlement discussions could occur would be for [the plaintiff] to withdraw her appeal” (at para 47).

He repeated this error at para 257 of his reasons. Such a statement does not appear in the Scaletta letter and cannot be inferred from it. [ 138 ] The trial judge characterized the Scaletta letter as being one of the “poor decisions and errors made by MPI” (at para 213). He stated (at para 258): Settlement negotiations occur every day in insurance claims. What is true is claimants agree to abandon any claims they are entitled after a settlement is reached between the insurer and the insured.

When Scaletta insisted [the plaintiff], an unrepresented person, abandon her appeal prior to conducting negotiations this was extremely egregious considering there was a three-year backlog at the AICAC. An unrepresented person relinquishing her rights to a statutory mandated appeal as a precondition is concerning to the court. A lawyer would not agree to this condition. Why would Scaletta even suggest such a precondition?

The court finds that MPI knew precisely what it was doing when Scaletta offered this as a precondition. [emphasis added] [ 139 ] The above passage evidences that the error was both palpable and overriding in that the trial judge relied on this error in finding MPI had acted in bad faith. In addition, the trial judge disregarded the uncontested evidence of Haithwaite that MPI “would never do” an all-inclusive settlement of

Part 2 benefits claims such as that proposed by Napoleone, and confirmed that Scaletta’s response was consistent with MPI’s position.

Constant Referrals to Case Managers [ 140 ] MPI argues that the trial judge erred when he criticized MPI for “repeatedly referring” (at para 192) the plaintiff’s IRI claim to case managers and making “no efforts to move the file to an AICAC hearing” (at para 207) which “caused a seven-year delay in her receiving benefits” (at para 196; see also paras 213, 218, 222). [ 141 ] The trial judge made these criticisms based on his determination that MPI was aware that the plaintiff was never able to return to work.

He made this finding despite the evidence of Haithwaite that the issue of her ongoing disability was a “close call” (at paras 151, 176, 225). He also failed to recognize the fact that the medical evidence, at times, indicated that she was able to return to

work in a limited capacity up until the time of her relapse. [142] In our view, the trial judge committed a palpable and overriding error when he stated that there were constant referrals tocase managers and that MPI made no effort to move the file to an AICAC hearing. As was indicated in our review of the facts, therewere only two instances after the Wiebe 1 decision was given where the plaintiff’s IRI claim was reconsidered by case managers. Theywere the Wiebe 2 decision (the post-fraud trial decision) and the Arabsky decision (the relapse decision).

Those were confirmed byStrutt’s review. [143] After Strutt’s review and after the plaintiff agreed to provide Dr. Graham’s clinical notes, the doctor advising MPI (Dr.Jones) reversed his position regarding the relapse issue and MPI agreed that she was owed IRI for the relapse. MPI and the plaintiffcould not agree on the amount owed. The matter was then sent to a case manager for determination, with the agreement of Napoleone. [144] Each of the above referrals were made to provide the reviewing bodies with either jurisdiction to hear the claim or toreach agreements prior to the AICAC hearing.

Thus, the trial judge’s findings that the referrals to case managers were made because“MPI was searching for evidence to support its denial of [the plaintiff’s] claim” (at para 218) or that the “introduction of ‘wiggle room’and a ‘plausible plan’ in 2005 explain[ed] MPI’s actions” (ibid) in this regard constituted palpable and overriding errors. [145] To summarize, we are persuaded that all of the errors that we have identified played a substantial role in the reasons ofthe trial judge.

Therefore, we conclude that the trial judge’s finding on bad faith cannot be sustained. [146] At this point, we must consider whether to order a new trial or to decide the live issue based on the evidentiary record. [147] Appellate courts are reluctant to put the parties through the time and expense of a new trial where it is unlikely to resultin a better or different evidentiary record (see Brar v Brar et al, 2018 MBCA 87 at para 45). [148] While this was a fairly lengthy trial, the record contains a voluminous amount of documentary evidence.

The trial judgedid not make significant negative credibility findings against the witnesses. Indeed, most of the facts are not in dispute. In thesecircumstances, there is no basis to believe that a new trial would result in a better evidentiary record. [149] We now consider afresh whether MPI breached its duty of good faith in its handling and processing of the plaintiff’sclaim. The Duty of Good Faith in Insurance Claims [150] Earlier in these reasons, we referred to Fidler as describing the requirement of good faith imposed on an insurer.

That is,the insurer must act fairly in the manner in which it assesses the claim and determines whether or not to pay it. Claims must be assessedin a balanced and reasonable manner and coverage should not be delayed or denied to take advantage of a claimant’s vulnerability or togain leverage. The duty of fairness does not require that an insurer necessarily be correct in making a decision to dispute its obligation topay, and mere denial of a claim that ultimately succeeds is not evidence of bad faith (see para 63). [151] In Intact Insurance, Mainella JA reviewed case law dealing with the duty of good faith.

He summarized (at paras 25-26): Given the complexities that often arise in assessing an insurance claim, an insurer is permitted to fairly debate the claim, and its amount,provided it acts reasonably (see Roderick Winsor, Good Faith in Canadian Insurance Law (Toronto: Thomson Reuters, 2017) at 5-17 to5-19; and Gordon G Hilliker, Insurance Bad Faith, 2nd ed (LexisNexis, 2009) at 68). In order to establish a breach of an insurer’s dutyof good faith, more must be shown than simply that errors occurred in the claims-handling process.

Also, just because an insurer isultimately wrong does not mean that it acted in bad faith. A successful action requires proof that there was no reasonable basis in law orfact to deny benefits and that the defendant knew or ought to have known that to be the case.

Tell-tale signs of bad faith by an insurer arewhen the handling of the claim was “overwhelmingly inadequate” or there was an “introduction of improper considerations into theclaims process” (Fidler v Sun Life Assurance Co of Canada, 2006 SCC 30 at para 71; and Industrial Alliance Insurance and FinancialServices Inc v Brine, 2015 NSCA 104 at para 69, leave to appeal to SCC refused, 36809 (12 May 2016)).

While an insurer is not required to accept any settlement within a policy’s limits, the duty of good faith requires it to take reasonablesteps to protect an insured’s interests in settling the claim on objectively reasonable terms.

Accordingly, where an insurer unfairlyattempts to lowball a settlement from an insured, it is not acting even-handedly; rather, it is acting in bad faith because it is placing itsown interests over those of its insured (see Hilliker at p 70; Fernandes v Penncorp Life Insurance Company, 2014 ONCA 615 at paras70, 83; and Zurich Life Insurance Company Limited v Branco, 2015 SKCA 71 at para 183, leave to appeal to SCC refused, 36696 (21April 2016)).

As was explained in 702535 Ontario Inc [702535 Ontario Inc v Lloyd’s London, Non-Marine Underwriters (2000), (ON CA), 184 DLR (4th) 687 (Ont CA)], an insurer cannot use its economic advantage or the insured’s economic weaknessto obtain a favourable settlement (see also Bhasin at para 65).

[emphasis added] [152] Whether the actions of an insurer constitute bad faith is determined on the facts in each individual case. The courtconsiders the conduct of the insurer throughout the claims process (see 702535 Ontario Inc v Lloyd’s London, Non-Marine Underwriters(2000), (ON CA), 184 DLR (4th) 687 at para 30 (Ont CA).

Did MPI Breach the Duty of Good Faith? [153] In our determination of whether the duty of good faith was breached, we will assess the evidence, commencing with theactions of MPI after the plaintiff was acquitted of fraud in 2005, as the trial judge found MPI’s actions prior to that time to be“reasonable” and “understandable”.

As we have explained, the wiggle room email, the “plausible plan” email, the “finest hour”testimony, the failure to implement the Crown’s recommendations, the Scaletta letter and the referrals back to case managers were notindicative of, or done in, bad faith. [154] The remaining indicators of bad faith which were argued by the plaintiff include (1) the late disclosure of the wiggleroom email, (2) her allegation that the Wiebe 2 decision was made improperly as MPI had no new information, and (3) that the $10,000Kumka offer constituted a “lowball offer”.

Late Disclosure of the Wiggle Room Email [155] In her factum, the plaintiff heavily relies on the non-disclosure of the wiggle room email as evidencing bad faith. [156] A review of the trial transcript reveals that, when Strutt mentioned the email in his testimony, he was unaware that aclaim of solicitor-client privilege had been made over the email by counsel for MPI. At that point, counsel for MPI stated that he hadclaimed solicitor-client privilege over the email.

The proceedings were adjourned until the next day when counsel for MPI advised theCourt that they had decided to waive the privilege. [157] Later, during his cross-examination of Strutt, counsel for the plaintiff asked him about the failure to disclose the email tothem, and Strutt again stated that he was unaware of the decision to treat it as privileged. He agreed that inquiries made by IROs werenot privileged. [158] Counsel for MPI objected to the line of questioning, claiming that the email included the provision of legal advice.

Thetrial judge indicated that the issue of whether the email provided legal advice would have to be argued before him given that Strutt hadindicated that a communication from an IRO was not privileged. Counsel for MPI did not agree with Strutt’s assessment that thedocument did not contain legal advice. While there was some back and forth, ultimately, the trial judge decided that the issue was “notof interest” to him because any privilege had already been waived. The trial judge never decided whether the email was properlyclaimed by counsel to be subject to solicitor-client privilege.

Counsel for MPI at trial maintained the position that the email wasprivileged and that its non-disclosure was a decision made by counsel (not by MPI) as part of the litigation process.

Nonetheless, in hisreasons, the trial judge stated that, if the email had not surfaced during the trial, his decision on bad faith “may have been very different”(at para 261) and that the late disclosure of it evidenced that “MPI was aware of the potential significance of the email, and theinferences that could be drawn by the court” (at para 262). [159] Absent a finding by the trial judge on whether privilege was properly claimed and in light of the fact that late disclosureresulted from counsel’s position on privilege, we would not attribute a lack of good faith to MPI due to the email’s late disclosure.

Moreover, our finding that the trial judge erred in ascribing nefarious intent to the term “wiggle room” supports our view that latedisclosure of the email is not an indication that MPI acted in bad faith. The Wiebe 2 Decision and Section 171(1) of the Act [160] The plaintiff argues that, given that there was no new information, the Wiebe 2 decision to deny the plaintiff IRI basedon sections 110(1)(

a) and 110(1)(

e) of the Act was made without jurisdiction. [161] MPI argued at trial and on appeal that the discovery of Dupont’s notes constituted new evidence consistent with section171(1) of the Act, which allows MPI at any time to make a fresh decision where it is satisfied that new information is available. [162] Alter

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