How to avoid turning the mishandling of a claim into a six-figure bad faith award

A Manitoba court decision ordering the province’s public auto insurer to pay a bad faith award of $350,000 serves as a cautionary tale to the industry that bad faith awards for mishandling a claim can be made even after a settlement is reached, according to legal experts from Clark Wilson LLP.

In November 2020, Manitoba Public Insurance (MPI) was ordered to pay a claimant a bad faith award of $348,248, which matched the amount the public auto insurer paid out to settle the claim. The court found the insurer had improperly denied the claimant her benefits for roughly nine years.

“Ensure a fair and timely settlement,” Raman Johal and Erin Barnes of Clark Wilson LLP urged in a recent blog post, Bad Faith Claims Against Insurers–Recent Cases Of Note. “Take into account any potential mishandling when reaching a settlement amount in order to avoid bad faith claims. Ensure comprehensive drafted releases accompany any settlement agreement.

“Poor handling can be conduct which rises to the level of bad faith. Failure to conduct a reasonable or proper investigation, for example by drawing inappropriate fact conclusions, can be considered poor handling and result in a finding of bad faith.”

The cautionary note follows a Manitoba Court of Queen’s Bench decision last November in Martens v. Manitoba Public Insurance.

In 1998, the insured, Evelyn Martens, was seriously injured in a car accident. Medical reports cited at trial indicated episodes of serious depression and neurological damage in her leg would make it very difficult for her to achieve her dream of opening a care home for troubled teenagers.

MPI paid Martens disability benefits and income replacement indemnity after the accident. But the public auto insurer terminated its payments in 2003 after receiving an anonymous tip on a “snitch” line. The tipster alleged that the insured was in fact working and had failed to report her income. MPI terminated benefits, Martens was charged with fraud, and a Manitoba court acquitted her in 2005.

In its decision to acquit, the court found that Martens had in fact told her case manager, Claudette Dupont, a rehabilitation consultant, that she was working occasional shifts doing respite work, group home work, and fostering a child. But Dupont, whose notes confirmed that Martens told her about the work, did not pass that information along to MPI.

After the court’s 2005 decision, the senior Crown prosecutor for Manitoba Justice issued a memorandum citing ways to improve how MPI handled the claim. “This is another case which highlights the clear need for claimants to have to sign a document on a regular basis that their financial and employment circumstances have not changed,” the memorandum stated.

Shortly after Martens’ acquittal, MPI once again denied her benefits. This time, instead of alleging fraud, MPI said Martens had failed to report income and that she was in fact capable of work. Martens’ lawyer served notice the decision would be appealed based on the fact that MPI had no new information about Martens failing to report income after the 2005 decision, which cleared her of any wrongdoing.

In what turned out to be pivotal evidence in the court’s finding of bad faith, shortly after Martens was acquitted of fraud in 2015, MPI senior solicitor Thomas R. Strutt sent an email to Bryan Wiebe, a senior MPI case manager whose decision it was to deny benefits in 2013. In his email to Wiebe, who was Strutt’s subordinate, Strutt implied that after the court’s decision, MPI would likely have to reinstate benefits unless Wiebe saw “wiggle room” or had a “plausible plan” to deny benefits.

Wiebe subsequently issued a letter terminating Martens’ benefits on the basis of failing to report income.

What followed was a seven-year period in which Martens was continually re-assigned new case managers to review the case. Throughout, MPI received medical opinion that Martens would not be able to pursue a career path in child care without her children’s help because of her injuries. Finally, shortly before an official legal review of MPI’s decision was scheduled in 2012, MPI settled the matter for $348,248.

The Manitoba Court of the Queen’s Bench ordered that MPI pay an additional bad faith award of $348,248. In doing so, it found that MPI’s mishandling of the case rose to the level of “an actionable wrong.”

“MPI conducted its investigation without speaking with Evelyn,” Manitoba Court of the Queen’s Bench Justice Sheldon Lanchbery wrote for the court. “If MPI had done so, it would have discovered not only was Evelyn unable to perform her promised job, but the work she was doing was as a result of the efforts of her children living with her. MPI would have discovered that Evelyn was not able to hold the employment of her promised job.

“All of the medical information in MPI’s possession when it made the decision in 2003 [to terminate benefits], and again in April of 2005, indicated Evelyn could not hold the employment she held at the time of the [car accident].”

Furthermore, the court noted, MPI’s actions after the 2005 court decision ultimately continued a nine-year holding pattern of denying Martens benefits that were entitled to her.

“The conundrum MPI finds itself in is that although the problem was well known internally it made no efforts to move the file to an AICAC [case review] hearing [after the 2005 court decision],” Lanchbery wrote. “The constant referral back of Evelyn’s claim so more decisions could be made and those decisions could then be reviewed is the problem. Evelyn must have considered herself the star in a version of the movie ‘Groundhog Day,’ waking up to her 6:00 a.m. alarm only to relive her nightmarish experience day after day.

“It does not matter what MPI’s witnesses testified to about their conduct during the trial [e.g. they testified that they did not harbor any animosity towards Martens]. What matters is the cumulative effect of those decisions in examining the claims process.”

 

Feature image courtesy of iStock.ca/Michail_Petrov-96

Additional photos by iStock.ca/MIND_AND_I and iStock.ca/simonkr