Public insurers must be held to a high standard of 'commercial morality,' said court
The Manitoba Court of Appeal has clarified in a recent decision that the duty of good faith implied in insurance contracts also applies to public insurers, even if no contractual relationship exists between the insurer and insured.
In Martens v. The Manitoba Public Insurance Corporation (MPI), 2021 MBCA 102, the plaintiff was involved in a serious accident while in an uninsured vehicle. She was awarded income replacement indemnity (IRI) benefit because of physical injuries and post-traumatic stress disorder. In 2003, the MPI decided to terminate her IRI benefit after she was charged with fraud. But the plaintiff was eventually acquitted, so she sued MPI, claiming damages for breach of the duty of good faith in how it dealt with her claim.
MPI argued that in administering claims under the Manitoba Public Insurance Act, it acts as an administrative tribunal. MPI further asserted that the duty of good faith should not be applied to it because to do so would “open the floodgates” for the obligation to be applied as well to other government administered social welfare plans.
The appellate court pointed out that, “here we have a government insurance monopoly administering a scheme of insurance that is imposed on the public by law…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.”
The court further equated “commercial morality” to the duty to act in good faith and ruled that it was the establishment of a relationship of insurer and insured that resulted in the obligation to act in good faith. The court emphasized that the obligation did not arise from a contractual relationship. Rather, it originated from a regulatory framework imposed upon the insurer and the insured.
Ultimately, the court ruled that the public insurance act created an insurance scheme, rather than a social welfare legislation. MPI is subject to the duty of good faith imposed upon all insurers. But the court is convinced that MPI did not act in bad faith in administering the plaintiff’s claim because the court found that MPI’s employees reviewed the plaintiff’s file over several years and made decisions accordingly.