Fletcher v. Manitoba Public Insurance Co., 1990 SCC 59

Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191

Thomas John Fletcher and

Cheryl Elizabeth Fletcher Appellants

v.

Manitoba Public Insurance Company Respondent

indexed as: fletcher v. manitoba public insurance co.

File No.: 21491.

1990: June 1; 1990: November 22.

Present: Lamer C.J.* and Wilson, Sopinka, Cory and McLachlin JJ.

on appeal from the court of appeal for ontario

Insurance ‑‑ Automobile insurance ‑‑ Duty of insurer ‑‑ Compulsory public automobile insurance plan ‑‑ Appellants not having underinsured motorist coverage ‑‑ Whether government-owned insurer obliged to inform its customers about all types of coverage available to them.

Torts ‑‑ Negligence ‑‑ Duty of care ‑‑ Compulsory public automobile insurance plan ‑‑ Appellants not having underinsured motorist coverage ‑‑ Whether government insurer obliged to inform its customers about all types of coverage available to them ‑‑ If so, whether insurer liable for failing to fulfil its duty.

Appeal ‑‑ Powers of appellate court ‑‑ Whether Court of Appeal erred in departing from trial judge's findings of fact.

Costs ‑‑ Whether trial judge erred in awarding appellants costs on a solicitor and client basis.

Both appellants suffered severe injuries as a result of an automobile accident caused by the driver of the other vehicle. That driver did not carry sufficient insurance to cover the appellants' losses. The appellants claimed for the shortfall against the respondent, a government‑owned insurance company, whose primary function was to administer a mandatory public automobile insurance scheme within the Province of Manitoba. Under the "Autopac" scheme the owner of a motor vehicle must purchase insurance which provides minimum collision and public liability coverage. In addition, "underinsured motorist coverage" (UMC) is available upon the payment of a slightly higher premium. At the time of the accident the appellants were insured by the respondent under an Autopac policy which did not provide UMC.

The trial judge found that the respondent failed in its duty to inform the appellant of the full range of coverage available to him and in particular UMC and awarded damages to the appellant to the extent of the shortfall. The Court of Appeal (Blair J.A. dissenting) reversed that decision.

The issues in this appeal are (1) whether the court of appeal erred in departing from the trial judge's findings of fact; (2) whether a government‑owned insurer selling compulsory insurance directly to vehicle owners has a duty to advise its customers of the existence, nature and extent of underinsured motorist coverage; (3) if so, whether the respondent fulfilled it in this case; (4) if the insurer did not fulfil its duty, whether it is liable for the appellants' loss; and (5) whether the trial judge erred in awarding the appellants their costs on a solicitor and client basis.

Held: The appeal should be allowed.

It was not open to the Court of Appeal to depart from the trial judge's findings of fact absent evidence of palpable and overriding error. The trial judge is in the best position to assess the credibility of testimony and his assessment of the witnesses' credibility should not be interfered with.

Reasonable reliance by a person on information provided by someone else can ground a duty of care in tort that binds the provider of the information. The sale of automobile insurance is a business in the course of which information is routinely provided to prospective customers with the expectation that they rely on it. As Autopac insurance is compulsory for all owners of motor vehicles, customers are likely to rely on the government insurer as their source of information about the kinds of additional coverage available and the nature of the protection afforded. The respondent knew or ought to have known that purchasers of insurance constitute a class of persons that may reasonably be expected to rely on the information communicated to them by its employees. It therefore owed its customers a duty of care to inform them of all available coverages, their purpose and their cost. While the duty is not as onerous as that imposed on private agents and brokers, the public insurer has the responsibility of seeing that its customers receive the information required to make intelligent decisions as to how much risk they are prepared to bear. The respondent's communication was insufficiently clear to discharge its duty of care. The initial information was inadequate and the information given with the renewal form was confusing. The purchaser was never in a position to make an informed choice about this optional coverage.

Whether a duty of care could also arise in contract was adverted to but not decided.

The trial judge's award of costs on a solicitor and client basis should stand. Prior to trial, the appellants filed an offer to settle which was not accepted by the respondent. One of the terms of that offer was that the appellants "shall have the right to structure all or part" of the sum. The respondent did not met its burden of showing that that offer was less favourable than the judgment award.

Cases Cited

Applied: Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; distinguished: Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 1977 CanLII 1182 (ON CA), 17 O.R. (2d) 529; referred to: Wigle v. Allstate Insurance Co. of Canada (1984), 1984 CanLII 45 (ON CA), 49 O.R. (2d) 101; The Sir Robert Peel (1880), 4 Asp. M.L.C. 321; Clarke v. Edinburgh Tramways Co., [1919] S.C. 35; Hontestroom (S.S.) v. Sagaporack (S.S.), [1927] A.C. 37; Prudential Trust Co. v. Forseth, 1959 CanLII 48 (SCC), [1960] S.C.R. 210; Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802; Lewis v. Todd and McClure, 1980 CanLII 20 (SCC), [1980] 2 S.C.R. 694; Edgington v. Fitzmaurice (1885), 29 Ch. D. 459; Nova Mink Ltd. v. Trans‑Canada Airlines, 1951 CanLII 325 (NS CA), [1951] 2 D.L.R. 241; Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562; Haig v. Bamford, 1976 CanLII 6 (SCC), [1977] 1 S.C.R. 466; B.D.C. Ltd. v. Hofstrand Farms Ltd., 1986 CanLII 51 (SCC), [1986] 1 S.C.R. 228; Kamloops (City of) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2; Mutual Life & Citizens' Assurance Co. v. Evatt, [1971] 1 All E.R. 150; Cherry Ltd. v. Allied Insurance Brokers Ltd., [1978] 1 Lloyd's Rep. 274; General Accident Fire and Life Assurance Corp. v. Peter William Tanter (The "Zephyr"), [1985] 2 Lloyd's Rep. 529; Banque Financière de la Cité SA v. Westgate Insurance Co., [1989] 2 All E.R. 952; Pare v. Occidental Life Insurance Co. of California (1986), 1986 CanLII 7805 (BC SC), 23 C.C.L.I. 288; Bell v. Tinmouth (1988), 1988 CanLII 3220 (BC CA), 34 C.C.L.I. 179; Norlympia Seafoods Ltd. v. Dale & Co., [1983] I.L.R. 6475; Woodside v. Gibraltar General Insurance Co. (1988), 1988 CanLII 4650 (ON SC), 34 C.C.L.I. 150; G.K.N. Keller Canada Ltd. v. Hartford Fire Insurance Co. (1983), 1983 CanLII 5487 (ON SC), 1 C.C.L.I. 34, conf. on appeal (1984), 4 C.C.L.I. xxxvii; Sjodin v. Insurance Corporation of British Columbia, [1987] I.L.R. 8319; Indemnity Insurance Co. v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169; Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888; Scott v. Wawanesa Mutual Insurance Co., 1989 CanLII 105 (SCC), [1989] 1 S.C.R. 1445; Jacuzzi Canada Ltd. v. A. Mantella & Sons Ltd. (1988), 31 C.P.C. (2d) 195.

Statutes and Regulations Cited

Insurance Act, R.S.M. 1987, c. I40.

Manitoba Public Insurance Corporation Act, R.S.M. 1987, c. P215, s. 48.

Rules of Civil Procedure, O. Reg. 560/84, Rule 49.10(1).

Authors Cited

Brown, Craig and Julio Menezes. Insurance Law in Canada. Toronto: Carswells, 1982.

Continuing Legal Education Society of British Columbia. Insurance Law -- 1985. Material prepared for a Continuing Legal Education Seminar held in Vancouver, B.C. on April 13, 1985. Vancouver: Continuing Legal Education Society of British Columbia, 1985.

MacGillivary, Evan James. MacGillivary & Parkington on Insurance Law Relating to All Risks Other than Marine, 8th ed. By Michael Parkington, et al. London: Sweet and Maxwell, 1988.

Snow, H. "Liability of Insurance Agents for Failure to Obtain Effective Coverage: Fine's Flowers Ltd. v. General Accident Assurance Co." (1979), 9 Man. L.J. 165.

APPEAL from a judgment of the Ontario Court of Appeal (1989), 1989 CanLII 10444 (ON SC), 68 O.R. (2d) 193, 32 O.A.C. 81, 36 C.C.L.I. 157, [1989] I.L.R. 9391, reversing the judgment of McKeown J. (1987), 1987 CanLII 4382 (ON SC), 60 O.R. (2d) 629, 26 C.C.L.I. 236, [1987] C.I.L.R. 8608, awarding damages to the appellants against the respondent. Appeal allowed.

Earl A. Cherniak, Q.C, and Peter W. Kryworuk, for the appellants.

Donald H. Rogers, Q.C., and David Stratas, for the respondent.

//Wilson J.//

The judgment of the Court was delivered by

WILSON J. -- This appeal raises questions concerning the responsibility of a government insurer to inform its customers about the types of automobile coverage open to them and the extent of such an insurer's liability should it fail to do so. The issue is particularly topical in Canada at the present time since several provinces have instituted compulsory public automobile insurance plans which have largely replaced the previous system of private insurance.

The appellants in this case were involved in a serious motor vehicle accident. The person responsible for the accident had inadequate insurance to cover the damages. When the appellants attempted to recover the shortfall from their own insurer, they were informed that they did not have "underinsured motorist coverage" (UMC), a special form of coverage which would have protected them against this type of loss. It was in this context that the question arose as to whether and to what extent the respondent insurer was duty-bound to inform the appellants about all the types of coverage which were available to them. The facts are important.

The Facts

Both appellants suffered severe injuries as a result of an automobile accident in the Province of Ontario and the appellant Cheryl Fletcher was rendered a paraplegic. The driver of the other vehicle, a Mr. Jean Piché, was found totally responsible for the collision and the appellants' damages were assessed at $1,387,090. The insurance available to indemnify Piché, however, was $500,000, leaving a shortfall of $887,090.

At the time of the accident the appellants were insured by the respondent, a government-owned insurance company. The Manitoba Public Insurance Company (MPIC) is a Crown corporation that was created by the Manitoba Public Insurance Corporation Act, R.S.M. 1987, c. P215 (the "Act"). Its primary function is to administer a mandatory public automobile insurance scheme within the province, which is widely known as "Autopac". MPIC sells insurance coverage of two basic types. The first type, which is not relevant to this appeal, provides coverage for all drivers automatically upon paying the fee for a Manitoba driver's licence. Relevant to this appeal is the second type of coverage which, pursuant to s. 48 of the Act, must be purchased by the owner of a vehicle when he or she registers that vehicle. This compulsory motor vehicle insurance provides minimum collision and public liability coverage. MPIC also offers two additional forms of coverage that are available upon payment of a slightly higher premium: UMC and P.L./P.D. (public liability and property damage), each of which is available up to a limit of $2,000,000. The public insurance scheme for automobiles in Manitoba is therefore quite straightforward: a prescribed minimum compulsory level of coverage for all automobile owners and two optional forms of coverage that are available for a higher premium.

Both the compulsory and additional forms of coverage may be purchased either from MPIC offices directly or through private insurance agents. There is no difference in price in either case. The UMC coverage that MPIC offered first became available on March 1, 1982 at a cost of $15 per year. Although private insurance companies were allowed to sell the additional forms of coverage, only one company in Manitoba was doing so when the appellants purchased their policy in 1982 and 1983.

At the time of their accident the appellants were insured under an Autopac policy which provided third party limits of $2,000,000. The policy did not provide UMC.

The appellants sued the respondent for damages in the Supreme Court of Ontario alleging breach of contract, misrepresentation, negligence and breach of duty. At trial, John Fletcher submitted that he had relied upon the expertise of MPIC's employees who served him when he obtained the compulsory insurance policy. He said that he had asked for the maximum available coverage and had assumed that he got it. But in the application for insurance and on the insurance certificate there was no mention of UMC. Counsel for MPIC placed a great deal of emphasis on a one page flyer consisting of two columns of small print which specified that UMC was available and which was sent to the appellants along with a renewal certificate for the policy several months after Mr. Fletcher had purchased the insurance. Mr. Fletcher testified that although the flyer included a brief reference to UMC, he believed that because the words "NOT APPLIC." had been typed in the box designated on the renewal certificate for UMC, this meant that the coverage offered was not applicable to him since he already had the maximum available coverage.

The trial judge found for the appellants in negligence and in contract and awarded them damages against the respondent in the amount of the shortfall. The respondent appealed and the Court of Appeal allowed the appeal and dismissed the appellants' action.

The Courts Below

Supreme Court of Ontario (McKeown J.) (1987), 1987 CanLII 4382 (ON SC), 60 O.R. (2d) 629

The trial judge found that when Mr. Fletcher first purchased his automobile insurance he was entitled to rely upon the respondent to explain to him the various forms of coverage that were available. He was not required to become his own insurance expert. Had the respondent not been prepared to do this it should have told its customers that they should consult a private insurance agent in order to obtain advice on insurance coverage.

The trial judge went on to find that the respondent did not inform Mr. Fletcher that UMC was available. He also found that had UMC been offered to Mr. Fletcher he would have purchased it. By failing to ensure both that the appellants were aware of the availability of UMC and that MPIC's employees were properly trained and instructed in order to be able to advise the appellants of UMC's availability and purpose, MPIC breached its duty to the appellants. When Mr. Fletcher dealt with the respondent he had a contractual right to rely on the offeror to advise him of the full range of coverage offered. But the duty was not only contractual; it sounded in negligence as well. McKeown J. therefore held that the respondent breached its duty to provide Mr. Fletcher with UMC when he requested maximum coverage, coverage which the respondent ought to have known included UMC. If it was not going to provide UMC, it had a duty to make clear to Mr. Fletcher that such coverage was available but was not being provided.

In McKeown J.'s view, Mr. Fletcher was a credible witness. McKeown J. accepted his testimony to the effect that he believed that "NOT APPLIC." on the renewal form meant UMC was not applicable to him since he already had the maximum available coverage. The trial judge found this interpretation to be reasonable.

Ontario Court of Appeal (1989), 1989 CanLII 10444 (ON SC), 68 O.R. (2d) 193

Finlayson J.A.

Finlayson J.A. was of the view, that much of Mr. Fletcher's evidence was self-serving and subjective. He felt that it did not support a finding that Mr. Fletcher had not been offered UMC but merely a finding that Mr. Fletcher had not read the written material designed to draw such coverage to his attention and that he had no recollection of having been told about the availability of UMC by the respondent's employees. Finlayson J.A. did not believe Mr. Fletcher's statement that he had relied upon the expertise of the respondent's employees to advise him of the coverage.

Finlayson J.A. was also of the view, at p. 198, that it would be "stretching the duty of an insurer to impose on it an affirmative obligation to ensure that each of its customers is in fact aware of the different types of insurance coverage available." The flyer received by the appellants made it clear that UMC was available and it was not the respondent's fault that the appellants failed to read it. He stated, at p. 198, that in circumstances where insurance is being sold directly to the public "it is difficult to envisage the formation of a relationship requiring the provision of unsolicited advice every time a customer comes to the counter". There was, in his view, no duty imposed upon the respondent to do any more than what was in fact done to inform the appellant of the availability of UMC.

Blair J.A. (dissenting)

Blair J.A. found no reason to interfere with the trial judge's conclusion that Mr. Fletcher's interpretation of the renewal application form was a reasonable one. He found the "NOT APPLIC." language in the UMC space on the form ambiguous and misleading. The confusion created by the renewal application form was, in his view, "compounded rather than clarified by the flyer enclosed with it".

Blair J.A. was also of the view that the evidence at trial supported McKeown J.'s conclusion both that UMC had not been mentioned to Mr. Fletcher when he attended the respondent's office to renew his coverage and that he would have purchased it had he been made aware of its availability. Moreover, little had been done by the respondent to inform the public about the existence of this type of protection. Whether customers were to be informed about the availability of UMC was left to the discretion of MPIC's employees.

Since McKeown J. had had "the inestimable benefit" of having seen and heard the testimony of all the witnesses, and since there were no manifestly unreasonable or overriding errors in the conclusions he had drawn from the evidence, Blair J.A. concluded that it was not open to the appeal court to interfere with the trial judge's findings.

Blair J.A. had no doubt that had Mr. Fletcher obtained the insurance policy through an independent agent, that agent would have been liable to him in tort. He stressed that the fact that all motor vehicle owners in Manitoba were required to obtain their prescribed minimum insurance from MPIC imposed upon it a strict duty "to inform the public adequately of its available additional coverage". He said, at p. 211:

Autopac ... enjoyed an almost complete monopoly in automobile insurance. It seems not too much to hold that no less can be properly expected from a publicly owned corporation, established to provide compulsory insurance to all motor vehicle owners as an essential public service, than from private insurance agents in adequately informing owners of the policy options available to them. This is particularly true where the same premium is payable whether the insurance is sold directly or through an independent agent. The law must respond in a practical way to the new reality of the sale of motor vehicle insurance compulsorily and directly by a governmental agency.

He therefore agreed with the trial judge that the respondent had failed in its duty to inform Mr. Fletcher of the availability of UMC when he purchased his insurance. In Blair J.A.'s view, the respondent was directly, and not merely vicariously, liable for its negligence in failing to do so.

He declined to rule on the arguments in support of a contractual basis for the duty owed by MPIC. "Whether and to what extent the decision of this court in Wigle v. Allstate Ins. Co. of Canada (1984), 1984 CanLII 45 (ON CA), 49 O.R. (2d) 101 ... and other cases on the doctrine of reasonable expectations apply to dealings between direct insurers and their insureds can be left to another day."

Morden J.A. (concurring in the result with Finlayson J.A.)

Morden J.A. agreed with Finlayson J.A. that the appeal should be allowed. He stated that he was prepared to assume the correctness of the trial judge's finding that the respondent had a duty to advise the appellants about UMC. He did not think, however, that the evidence supported McKeown J.'s conclusion that the respondent had breached that duty. Morden J.A. noted that it was clear from the evidence that, if the appellant had read the flyer when he received it, he would have found out what UMC was, that it was available, and that he did not have it. In his mind Fletcher's failure to read the flyer was the decisive factor that defeated the appellants' claim.

The Issues

This appeal raises five issues:

1.Did the Ontario Court of Appeal err in departing from the trial judge's findings of fact?

2.Does a government-owned insurer selling compulsory insurance directly to owners of motor vehicles in the province of Manitoba have a duty to advise its customers of the existence, nature and extent of underinsured motorist coverage?

3.If such an insurer has such a duty, did it fulfil it in this case?

4.If the insurer did not fulfil its duty, is it liable for the appellants' loss?

5.Did the trial judge err in awarding the appellants their costs on a solicitor and client basis?

Analysis

1.Did the Ontario Court of Appeal err in departing from the trial judge's findings of fact?

It is essential that one have a clear picture of the facts in this appeal. In my view, we must therefore deal with a preliminary issue: in what circumstances is it appropriate for an appellate court to depart from a trial judge's findings of fact?

In The Sir Robert Peel (1880), 4 Asp. M.L.C. 321, James L.J. said at p. 322:

The Court will not depart from the rule it has laid down that it will not overrule the decision of the Court below on a question of fact in which the judge has had the advantage of seeing the witnesses and observing their demeanour, unless they find some governing fact which in relation to others has created a wrong impression.

In Clarke v. Edinburgh Tramways Co., [1919] S.C. (H.L.) 35, Lord Shaw confirmed that primacy must be given to the trial judge's findings of fact. He said, at pp. 35-36:

When a Judge hears and sees witnesses and makes a conclusion or inference with regard to what is the weight on balance of their evidence, that judgment is entitled to great respect, and that quite irrespective of whether the Judge makes any observation with regard to credibility or not. I can of course quite understand a Court of Appeal that says that it will not interfere in a case in which the Judge has announced as part of his judgment that he believes one set of witnesses, having seen them and heard them, and does not believe another. But that is not the ordinary case of a cause in a Court of justice. In Courts of justice in the ordinary case things are much more evenly divided; witnesses without any conscious bias towards a conclusion may have in their demeanour, in their manner, in their hesitation, in the nuance of their expressions, in even the turns of the eyelid, left an impression upon the man who saw and heard them which can never be reproduced in the printed page. What in such circumstances, thus psychologically put, is the duty of an appellate Court? In my opinion, the duty of an appellate Court in those circumstances is for each Judge of it to put to himself, as I now do in this case, the question, Am I -- who sit here without those advantages, sometimes broad and sometimes subtle, which are the privilege of the Judge who heard and tried the case -- in a position, not having those privileges, to come to a clear conclusion that the Judge who had them was plainly wrong? If I cannot be satisfied in my own mind that the Judge with those privileges was plainly wrong, then it appears to me to be my duty to defer to his judgment.

Lord Sumner approved of this approach in Hontestroom (S.S.) v. Sagaporack (S.S.), [1927] A.C. 37 (H.L.), where he said at p. 47:

None the less, not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone. [Emphasis added.]

This proposition has been repeatedly endorsed in Canada: see, for example, Prudential Trust Co. v. Forseth, 1959 CanLII 48 (SCC), [1960] S.C.R. 210, at p. 217, per Martland J. Recent cases have gone on to refine the principle set out in The Sir Robert Peel and The S.S. Hontestroom. In particular, Ritchie J. provided a thorough history of the principle's evolution in Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802, at pp. 806-8 and concluded:

These authorities are not to be taken as meaning that the findings of fact made at trial are immutable, but rather that they are not to be reversed unless it can be established that the learned trial judge made some palpable and overriding error which affected his assessment of the facts. While the Court of Appeal is seized with the duty of re-examining the evidence in order to be satisfied that no such error occurred, it is not, in my view, a part of its function to substitute its assessment of the balance of probability for the findings of the judge who presided at the trial. [Emphasis added.]

And in Lewis v. Todd and McClure, 1980 CanLII 20 (SCC), [1980] 2 S.C.R. 694, Dickson J. (as he then was) reiterated that a trial judge's findings of fact should not be interfered with unless he or she had made a "palpable and overriding error". He stated at p. 700:

It is trite law that an appellate court should not readily interfere with the findings of a trial judge, for reasons so often adumbrated but resting largely upon the advantage which a judge at trial enjoys over an appellate court, in having seen and heard the witnesses in the atmosphere of the arena.

These authorities, in my view, make crystal clear the test for determining when it is appropriate for an appellate court to depart from a trial judge's findings of fact: appellate courts should only interfere where the trial judge has made a "palpable and overriding error which affected his assessment of the facts." The very structure of our judicial system requires this deference to the trier of fact. Substantial resources are allocated to the process of adducing evidence at first instance and we entrust the crucial task of sorting through and weighing that evidence to the person best placed to accomplish it. As this Court and the House of Lords have repeatedly emphasized, it is the trial judge who is in the best position to assess the credibility of testimony. An appellate court should not depart from the trial judge's conclusions concerning the evidence "merely on the result of their own comparisons and criticisms of the witnesses": see Lord Sumner in The S.S. Hontestroom, supra, at p. 47.

In the appeal now before us Finlayson J.A. departed from the trial judge's findings of fact on at least two counts. He did not accept McKeown J.'s finding that Mr. Fletcher had relied on the respondent's employees for information and advice. Nor did he accept McKeown J.'s finding that had Fletcher been offered UMC, he would have purchased it. Yet at no point did Finlayson J.A. apply the test that this Court set out in "Kathy K", supra, and Lewis v. Todd and McClure, supra. No attempt was made to spell out whether and in what respects the trial judge's findings of fact constituted "palpable and overriding errors". Instead, Finlayson J.A. explained his decision to depart from the trial judge's findings of fact by observing that the trial judge had "stretched the evidence in favour of Fletcher". He refused to give much credence to the testimony of Fletcher, calling it "self-serving" and "entirely subjective", and concluded by observing that he did not propose to give much weight to the trial judge's findings of fact.

With respect, I do not think that it was open to the Court of Appeal to depart from the trial judge's findings of fact absent evidence of a palpable and overriding error. An appellate court should not substitute its views about the facts for those of the trial judge without carefully applying the strict test which has been developed over the years by the highest courts in England and Canada. Absent some manifest and palpable error, the trial judge's assessment of the witnesses' credibility must be allowed to stand.

In the case at bar, the witnesses' testimony and credibility were carefully considered by the trial judge. John Fletcher testified in chief that, "I was there to purchase insurance. I relied upon their expertise to advise me." McKeown J. was of the view, at p. 632, that Mr. Fletcher was "a very careful and honest and credible witness [who] answered all questions in a straightforward manner" and he therefore found that Mr. Fletcher had relied upon the respondent's employees for advice.

Mr. Fletcher also testified that if he had been advised about the availability of UMC, he would have purchased it for additional safety. McKeown J. commented, at p. 632, that "This is credible since the cost was only $15. He had always followed his insurance broker's advice in Ontario, and [his former insurance broker] said that he was an insurance conscious person." In summarizing his findings McKeown J. said: "I find that if John Fletcher had been offered underinsured motorist coverage he would have purchased the coverage."

McKeown J.'s findings were based on an appreciation of the appellant's state of mind when he purchased the insurance and it was for the trial judge to assess the evidence with respect to that state of mind. As Bowen L.J. observed in Edgington v. Fitzmaurice (1885), 29 Ch. D. 459, at p. 483:

... the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else.

McKeown J.'s findings of fact must stand. There is no reason to believe that he made a "palpable and overriding error". He concluded, as he was entitled to do, that Mr. Fletcher was an extremely credible witness. On that basis he found that Mr. Fletcher relied on the respondent's employees for information and advice and that he would have purchased UMC had it been offered. These findings are entirely reasonable and it is no more open to this Court than it was to the Court of Appeal to depart from them.

2.Did the respondent, a government-owned insurer selling compulsory insurance directly to owners of motor vehicles in the province of Manitoba, have a duty to advise its customers of the existence, nature and extent of underinsured motorist coverage?

The appellants submit that the respondent owed them a duty to inform them of the availability of UMC. They argue that this duty sounds in both tort and contract, that there was a breach of this duty, and that they are entitled to damages in the amount of their loss.

A determination as to whether a duty is owed in either tort or contract in the circumstances of this case and, if so, the scope of that duty will have several important implications for publicly owned and operated insurance plans. For example, decisions about the type of training given to employees who deal directly with customers will almost certainly have to be made with an eye to the content of the duty imposed by law on such insurers. If the law requires them not only to advise customers of the different options available but also to explain the nature of the protection these options provide, then insurers will have to make sure that their employees are equipped to do this. If the content of the duty is even greater and the insurer is obliged to advise the customer whether he or she should acquire such additional coverage, even more extensive employee training may be required.

I propose to consider first whether a duty sounds in tort and thereafter, if necessary, whether it sounds also in contract.

(A) Tort

(a) Is there a duty of care?

The question raised by this appeal is whether MPIC owes a duty of care in the provision of information to its customers about optional forms of insurance coverage. To answer this question we must focus on the relationship between insurer and insured. In other words, we need to consider whether there is anything about the context in which customers purchase a policy from the public insurer which might be thought to give rise to a duty to provide information and to advise them of their options. I begin by reviewing the principles of law applicable to determine whether a duty of care exists and then turn to consider the application of those principles in the context of this appeal.

In Nova Mink Ltd. v. Trans-Canada Airlines, 1951 CanLII 325 (NS CA), [1951] 2 D.L.R. 241, a mink ranch operator sued an airline for damages when the noise created by one of their pilots flying low over the operator's ranch caused the female mink to eat the young. MacDonald J. found that the defendant airline had no duty to the plaintiff because the pilot did not know and could not reasonably have foreseen that there were mink farms in the area. MacDonald J. approached the case by first posing himself the question at pp. 253-54:

Does the evidence establish that the defendant was under a legal duty to use care to avoid injury to the plaintiff's business as a mink ranch operator?

He then explained at p. 254 how this question is to be answered:

The common law yields the conclusion that there is such a duty only where the circumstances of time, place, and person would create in the mind of a reasonable man in those circumstances such a probability of harm resulting to other persons as to require him to take care to avert that probable result.

He continued at p. 256:

Many attempts have been made to generalize the circumstances which create a legal duty of care.... What is common ... is the idea of a relationship between parties attended by a foreseeable risk of harm .... That relationship may arise out of circumstance of physical proximity; but it is not that circumstance per se which gives rise to duty but the probability of harm inhering in the relationship of parties, spatial or otherwise. If such a relationship does exist in fact, or in contemplation, and is fraught with the likelihood of harm to another in that relationship, the basis of duty exists; and it is immaterial that the locus or date of the occurrence of the apprehended harm be unknown. [Emphasis in original.]

MacDonald J. in Nova Mink Ltd. was applying the classic formulation in Lord Atkin's famous dictum in Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562, at p. 580:

At present I content myself with pointing out that in English law there must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances .... You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be -- persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.

English and Canadian courts have applied Lord Atkin's "neighbour principle" to many types of relationships, including those involving the communication of information. There is now ample authority for the proposition that reasonable reliance by a person on information provided by someone else can ground a duty of care at common law that binds the provider of the information. For example, in Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, the House of Lords considered the liability of bankers who had negligently provided references concerning the solvency of one of their clients to the plaintiff company. The plaintiff company relied on these references and subsequently suffered significant losses when the client went into liquidation. The Law Lords held that in certain cases involving the provision of information or advice by one person to another, despite the absence of any contract between them, a special relationship can arise so as to impose on the provider of the information a duty of care towards the person who received it. Lord Morris of Borth-y-Gest said at pp. 502-3:

My Lords, I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise. [Emphasis added.]

Courts in England and Canada have applied the Hedley Byrne principle to other relationships of proximity where it was foreseeable that one party would reasonably rely on the information or advice given by the other: see, for example, Haig v. Bamford, 1976 CanLII 6 (SCC), [1977] 1 S.C.R. 466 (chartered accountants/investors), B.D.C. Ltd. v. Hofstrand Farms Ltd., 1986 CanLII 51 (SCC), [1986] 1 S.C.R. 228 (courier company/client), and Kamloops (City of) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2 (municipal building inspectors/homeowners).

In Mutual Life & Citizens' Assurance Co. v. Evatt, [1971] 1 All E.R. 150, Lord Diplock discussed at p. 154 the type of circumstances which give rise to a relationship of reliance and a concomitant duty to take care:

In Hedley Byrne itself and in the previous English cases on negligent statements which were analysed in the speeches, with the notable exceptions of Fish v. Kelly, (1864) 17 CBNS 194, Derry v. Peek, (1889) 14 App Cas 337, [1886-90] All ER Rep I, and Low v. Bouverie, [1891] 3 Ch 82, [1891-94] All ER Rep 348, the relationship possessed the characteristics (1) that the maker of the statement had made it in the ordinary course of his business or profession and (2) that the subject-matter of the statement called for the exercise of some qualification, skill or competence not possessed by the ordinary reasonable man, to which the maker of the statement was known by the recipient to lay claim by reason of his engaging in that business or profession.

The editors of MacGillivary & Parkington on Insurance Law (8th ed. 1988), commenting on the evolution of the Hedley Byrne principle, state at p. 231:

Although the grounds and scope of the duty to take care in the making of statements cannot be said to be definitively settled, there is no doubt that the duty would apply to parties in negotiations for a policy of insurance.

Indeed, English and Canadian courts have not hesitated to apply the Hedley Byrne principle to the relationship between insurance agents and their clients: see, for example, Cherry Ltd. v. Allied Insurance Brokers Ltd., [1978] 1 Lloyd's Rep. 274 (Q.B.), General Accident Fire and Life Assurance Corp. v. Peter William Tanter (The "Zephyr"), [1985] 2 Lloyd's Rep. 529 (Eng. C.A.), Banque Financière de la Cité SA v. Westgate Ins. Co., [1989] 2 All E.R. 952 (Eng. C.A.), Pare v. Occidental Life Insurance Co. of California (1986), 1986 CanLII 7805 (BC SC), 23 C.C.L.I. 288 (B.C.S.C.), Bell v. Tinmouth (1988), 1988 CanLII 3220 (BC CA), 34 C.C.L.I. 179 (B.C.C.A.), Norlympia Seafoods Ltd. v. Dale & Co., [1983] I.L.R. 6475 (B.C.S.C.) and Woodside v. Gibraltar General Insurance Co. (1988), 1988 CanLII 4650 (ON SC), 34 C.C.L.I. 150 (Ont. S.C.) (appeal pending).

At issue in Banque Financière, supra, was the liability of the defendant insurer for the actions of its agent who had negligently failed to disclose to the plaintiff banks the deception being practised by one of the banks' debtors. Slade L.J. stated at p. 1007:

Can a mere failure to speak ever give rise to liability in negligence under Hedley Byrne principles? In our view it can, but subject to the all-important proviso that there has been on the facts a voluntary assumption of responsibility in the relevant sense and reliance on that assumption. These features may be much more difficult to infer in a case of mere silence than in a case of misrepresentation. But that they can be inferred is shown by a recent decision of this court in Al-Kandari v J R Brown & Co. (a firm) [1988] 1 All E.R. 833, [1988] QB 665....

In many cases where a misrepresentation has been made to another person, particularly by a professional man acting in the course of his profession, the assumption of responsibility may be readily inferred.

We can see no sufficient reason on principle or authority why a failure to speak should not be capable of giving rise to liability in negligence under Hedley Byrne principles, provided that the two essential conditions are satisfied.

Norlympia Seafoods Ltd., supra, concerned the duty of care of an insurance broker who, while arranging insurance for the maiden voyage of a large fish processing barge, mistakenly advised the owners of the barge that certain forms of coverage were in place. The barge ran aground and suffered extensive damage to the hull and machinery. These losses were not covered by insurance. Although McLachlin J. (as she then was) was of the view that the relationship between the parties was properly analysed on the basis of contract, she added at p. 6491:

... it may be noted that application of recognized tort principles would also establish the liability of Dale & Company. On the principles established in Hedley Byrne ... the defendant is liable for failure to properly inform the plaintiffs of material facts and for misrepresentation of material facts.

These cases support the proposition that individuals or corporations whose business involves the provision of information or advice to others owe a duty of care in communicating that information or advice to those whom they know will reasonably rely on it. As Slade L.J. said, at p. 1007, where the information is provided in the course of doing business, the "assumption of responsibility may be readily inferred."

In my view, the sale of automobile insurance is a business in the course of which information is routinely provided to prospective customers in the expectation that they will rely on it and who do in fact reasonably rely on it. It follows, therefore, that the principle in Hedley Byrne applies and that MPIC will owe a duty of care to its customers if: (i) such customers rely on the information, (ii) their reliance is reasonable, and (iii) MPIC knew or ought to have known that they would rely on the information.

(i) Was there reliance?

McKeown J. found that the appellant Mr. Fletcher relied upon the expertise of MPIC's employees to inform him of available coverages. This is not surprising. It is only natural that customers will rely on the information that public insurers provide to them in order to make decisions about how much risk they are willing to bear. Moreover, I note that in the appeal before us Autopac insurance is compulsory for all owners of motor vehicles. Accordingly, they are likely to rely on the government insurer as their source of information about the kinds of additional coverage available and the nature of the protection it affords.

(ii) Was the reliance reasonable?

In my view, customer reliance is entirely reasonable in the circumstances. Few people approaching MPIC's counter will have any great familiarity with the compulsory insurance requirement of the law or with the specific types of optional additional coverage available and the protection they provide. They expect the employee serving them to tell them about the risks against which they must insure and those against which they may insure and what it will cost to do so.

(iii) Was the reliance expected?

In B.D.C. Ltd. v. Hofstrand Farms Ltd., supra, Estey J. made it clear that, before a court can impose a duty of care on the defendant, a plaintiff has to establish not only that there was reasonable reliance by him or her but that the defendant was aware of that reliance. On the latter criterion Estey J. followed Haig v. Bamford, supra, in which Dickson J. (as he then was) elaborated on the requirement that the defendant "know" that the plaintiff will rely on him. Dickson J. held at pp. 476-77 that it was not necessary that the defendant be aware of any specific plaintiff who was relying on him. The defendant's liability was grounded rather in his knowledge that a limited class of persons (to which class the plaintiff belonged) would use and rely upon his statement.

It is clear in this case that MPIC knew or ought to have known that purchasers of insurance constitute a class of persons that may reasonably be expected to rely on the information communicated to them by its employees. A public insurer cannot assume that customers are knowledgeable about the various optional coverages and that they will therefore know exactly what to ask for when they arrive at the counter. At the very least, customers need some clear information about available options in order to make an informed choice about the amount and type of insurance they should buy. In the case at bar, two top executives of the respondent stated on examination for discovery that MPIC purported to provide the same service to the public with respect to selling the Autopac insurance that private brokers do and that the public would have no good reason to suspect that the calibre of the advice they received from the Autopac agents would be any less competent. It is evident that these executives were well aware that customers would rely on the information their employees provided. Such anticipated reliance brings the customer within the scope of those persons directly affected by the insurer's acts or omissions. It makes him or her a "neighbour", to use Lord Atkin's phrase. I conclude therefore that MPIC owed a duty of care to its customers to inform them of all available coverages, their purpose and their cost.

(b) What is the scope of the duty?

The appellants submit that MPIC's duty of care should be the same as that of a private insurance agent or broker in Manitoba. The respondent, on the other hand, argues that, if there is a duty at all, it is merely the duty owed by a seller to a buyer in a transaction between two parties dealing at arm's length. In my view, the scope of the duty owed by MPIC lies somewhere between these two positions.

(i) The duty on private agents and brokers

Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 1977 CanLII 1182 (ON CA), 17 O.R. (2d) 529 (C.A.), is the leading Canadian case concerning the duty of care owed by private insurance agents and brokers. Mr. Fine had an extensive horticultural business. He asked his insurance agent, through whom he had purchased insurance for more than 20 years, to obtain "full coverage" for his business. The agent obtained coverage under a policy which covered a number of risks. However, it did not cover damage resulting from breakdown of the heating system due to normal wear and tear of the pumps. A pump failure subsequently occurred and extensive damage was caused to the plaintiff's plants and flowers.

The outcome of the case turned on whether the plaintiff's loss fell within the scope of the duty owed by the insurance agent. The majority discussed the agent's duty at p. 538:

The main ground of appeal from the judgment of the learned trial Judge is that he put far too broad and sweeping a duty on insurance agents. They are not insurers. It is not part of their duty to know everything about their clients' businesses so as to be in a position to anticipate every conceivable form of loss to which they might be subject. The agent's duty, counsel submits, is "to exercise a reasonable degree of skill and care to obtain policies in the terms bargained for and to service those policies as circumstances might require".

I take no issue with counsel's statement of the scope of the insurance agent's duty except to add that the agent also has a duty to advise his principal if he is unable to obtain the policies bargained for so that his principal may take such further steps to protect himself as he deems desirable. The operative words, however, in counsel's definition of the scope of the agent's duty, are "policies in the terms bargained for".

In many instances, an insurance agent will be asked to obtain a specific type of coverage and his duty in those circumstances will be to use a reasonable degree of skill and care in doing so or, if he is unable to do so, "to inform the principal promptly in order to prevent him from suffering loss through relying upon the successful completion of the transaction by the agent".

But there are other cases, and in my view this is one of them, in which the client gives no such specific instructions but rather relies upon his agent to see that he is protected and, if the agent agrees to do business with him on those terms, then he cannot afterwards, when an uninsured loss arises, shrug off the responsibility he has assumed. [Emphasis added.]

Thus, the agent would have discharged his duty in Fine's Flowers if he had informed the plaintiff that certain types of losses were not covered by the policy he had arranged and had advised the plaintiff to purchase additional coverage for the pumps if he really wanted "full coverage". Estey C.J.O. (as he then was) stressed that the agent owed a positive duty to warn the client. He put the standard for determining the agent's liability in negligence as follows at p. 533:

It was the duty of the defendant agent to either procure such [requested] coverage, or draw to the attention of the plaintiff his failure or inability to do so and the consequent gap in coverage. Having done neither, the defendant agent is liable in negligence,...

In my view, Fine's Flowers stands for the proposition that private insurance agents owe a duty to their customers to provide not only information about available coverage, but also advice about which forms of coverage they require in order to meet their needs. I note that Professor Snow has summarized the effect of Fine's Flowers in "Liability of Insurance Agents for Failure to Obtain Effective Coverage: Fine's Flowers Ltd. v. General Accident Assurance Co." (1979), 9 Man. L.J. 165, in the following terms, at p. 169:

The implication of this case and many others like it in recent years seems clear. Consumers who place their faith in insurance agents holding themselves out as competent and find their faith misplaced, will frequently be able to find recourse against the agent. ... [T]he extent of the duty owed by an insurance agent, both in placing insurance and in indicating to the insured which risks are covered and which are not, as set out in this case, is a fairly stringent one for the agent. Moreover, given the general situation of the principal relying very heavily on the expertise of the agent, it does not seem to be an unreasonable burden for an insurance agent to bear. [Emphasis added.]

The duty of care owed by an insurance agent was further elaborated in G.K.N. Keller Canada Ltd. v. Hartford Fire Insurance Co. (1983), 1983 CanLII 5487 (ON SC), 1 C.C.L.I. 34 (Ont. H.C.) (conf. on appeal (1984), 4 C.C.L.I. xxxvii (Ont. C.A.)). It was held in that case that where the customer adequately describes the nature of his or her business to the agent, the onus is then on the agent to review the insurance needs of the customer and provide the full coverage requested. Should an uninsured loss occur, the agent will be liable unless he or she has pointed out the gaps in coverage to the customer and advised him or her how to protect against those gaps.

It is clear that within the insurance industry, as also within the courts, private insurance agents and brokers are viewed as more than mere salespeople. The Continuing Legal Education Society of British Columbia's 1985 Seminar on Insurance Law focused on the services they provide, (at p. 6.1.03):

The services of a competent agent or broker will include, in addition to advice on insurance, and the brokering or placing of insurance on behalf of the client, an active interest and involvement in loss prevention and a claims supervisory service to assist your client in the satisfactory settlement of the claims.

In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice. It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice.

(ii) The duty on public insurers

What then is the scope of MPIC's duty? Is it, as the appellant submits, as onerous as that imposed on private agents and brokers? I think not. I think it is a duty to inform customers of the available range of coverage. Given that automobile accidents often produce tragic consequences that may be irreversible and virtually incapable of compensation in monetary terms, customers must have all the information they need in order to make an informed choice about the level of coverage appropriate for them. Where an additional optional form of coverage such as UMC is offered precisely because it is foreseeable to the insurer that there may be instances where the standard coverage is inadequate, it is right and proper that the insurer be under a duty to make the existence of such optional coverage known to the customer. Selling insurance is not, as the respondent suggests, like selling groceries, and the law should not treat them alike. The purchase of insurance is predicated on decisions made about assessing and bearing risks. Members of the public need to have all relevant information available to them in an explicit and readily comprehensible manner if they are to make intelligent decisions about how much risk they are prepared to bear. The public insurer has the responsibility of seeing to it that that information is provided to them in a reasonably intelligible fashion.

By the same token, however, there are a number of reasons why the public insurer's duty is less onerous than that of the private agent or broker. The institutional setting in which the public insurance is sold affords considerably less scope for privacy and individualized attention than that provided by a private agency. As the trial judge noted, an MPIC employee may serve as many as 60 people a day. Further, the employees who serve the customers do not hold themselves out as specialists in risk assessment and insurance advice. The service they provide is more sales and clerical than that provided by an insurance agent. Indeed, I note that the employees of MPIC are specifically exempted from the requirement set out in the Insurance Act, R.S.M. 1987, c. I40, that persons selling insurance be qualified and licensed as agents. This is not to say that the average customer should be taken to know about this statutory exemption. But one must nonetheless be sensitive to the role that the legislature envisaged that MPIC's salespeople would play. In my opinion, MPIC's employees were not intended to sit down with their customers and inquire into their personal, family and business affairs so as to provide individualized insurance advice.

The respondent submitted that, since MPIC is a public body, it should be granted the immunity traditionally accorded to public authorities from actions based on an authority's failure to act. The respondent states that the rationale behind this rule is that to expose public authorities to liability in these circumstances would "result in great hardship" and seriously impede their efforts to fulfil their administrative functions. On this reasoning, no positive duty to inform customers about coverage options should be imposed on the public insurer because it would be "overly onerous and therefore unreasonable" for MPIC to warn the hundreds of thousands of drivers in the province of Manitoba that for certain accidents their coverage might be inadequate. In my view this submission is without merit. The options that are available are simple and straightforward. It is not asking too much of the employee to have him or her tell the customer that they exist. I agree with Blair J.A. who stated:

Autopac's duty was limited to ensuring that the necessary information, upon which applicants could make their decisions, was placed before them. The duty did not extend to advising or persuading them to take the optional coverage nor did Fletcher's counsel contend that it did.

(B) Contract

It was argued at trial that MPIC was under a contractual duty to provide the appellants with timely and accurate information about the additional forms of coverage that were available. The learned trial judge stated at p. 638: "When Mr. Fletcher dealt with M.P.I.C. he had a contractual right, as does anyone contracting for service, to rely on the offerer to advise him of the range of coverage offered. The duty is not only a contractual duty but sounds in negligence."

Since I have concluded that public insurers such as MPIC have a duty in tort to inform their customers of the additional forms of coverage available to them, it is not strictly necessary for the disposition of this appeal to determine whether such a duty can also be grounded in contract.

The appellants did not develop a detailed contractual analysis before this Court. They relied on the decision in Fine's Flowers, supra, to support their contention that MPIC owed them a duty in both tort and contract. I note, however, that in that case there was an ongoing contractual agreement binding on the broker that required him to keep the plaintiff covered for all foreseeable, insurable and normal risks associated with its horticultural business. While there may be an argument that would support a finding of contractual duty in the circumstances of the present case, the decision in Fine's Flowers is clearly distinguishable.

I note that Blair J.A. suggested that a contractual analysis rooted in the doctrine of reasonable expectations might be persuasive but did not think it necessary to reach a conclusion on this aspect of the case. Since this Court has not had the benefit of counsel's submissions on this point, I agree that the question of whether public insurers owe a duty in contract is best left for another day.

3. If such an insurer has such a duty, did it fulfil it in this case?

Having concluded on the basis of the above analysis that public insurers are under a duty to inform their customers of the full range of coverage available to them, did MPIC fulfil its duty in this case?

The trial judge made two significant findings. He found first that MPIC had made minimal efforts to inform the Manitoba public generally about the availability of UMC. He found second that it had not made sufficient efforts to inform the appellants of the existence and availability of UMC. A majority of the Court of Appeal held that MPIC's efforts were sufficient to discharge the duty they owed to the appellants.

With respect to informing the public at large, McKeown J. had the benefit of extensive testimony at trial about the comparative success of various public insurance companies' information campaigns about underinsured motorist insurance. In particular, the effort to educate the public in Manitoba was contrasted with that in British Columbia, a matter that had come under scrutiny in Sjodin v. Insurance Corporation of British Columbia, [1987] I.L.R. 8319. The trial judge found that MPIC had not set up a public education program similar to the one established by the Insurance Corporation of British Columbia (I.C.B.C.). No large scale advertising campaign was launched in Manitoba to explain the new UMC option which became available for the first time in Manitoba in March of 1982. Furthermore, MPIC's employees did not ask customers as a matter of course whether they wanted UMC. The trial judge noted that the extensive public education program had been successful in B.C. as evidenced by the relatively high acceptance rate (97 per cent of eligible B.C. drivers purchased it) compared to Manitoba. In Sjodin this evidence was viewed as crucial to the court's finding that I.C.B.C. had not failed in its duty to inform the plaintiff.

The trial judge also found that MPIC's efforts to inform Mr. Fletcher were inadequate. The evidence at trial shows (at p. 632) that when Mr. Fletcher initially went to the offices in Winnipeg in September of 1982, he explained to the agent who served him that he was a new resident of Manitoba and that in order to ensure "additional safety for both him and his wife" he wanted to purchase "the maximum coverage". The respondent's employee, a Mr. Lanthier, offered him additional P.L./P.D. coverage, and he purchased the maximum amount available, $2,000,000. But at no time was he informed of the existence, cost or purpose of UMC. As noted, the trial judge found as a fact that if Fletcher had been told about UMC, he would have purchased it, since it was relatively inexpensive and since he had done so with his previous insurer in Ontario. On the subsequent renewal certificates sent to him in 1983 there was a separate box for UMC in which was marked "NOT APPLIC." That made good sense to Fletcher since he had purchased and was paying for "the maximum coverage" available.

McKeown J. was of the view that these forms only compounded the wrong caused by the initial omission to tell customers about UMC. Their effect was to mislead Fletcher. Here was someone who had explicitly requested the maximum available coverage and whose (mistaken) belief that he was insured against all insurable risks was subsequently confirmed by the renewal form which appeared to indicate that he had no need of UMC. MPIC's general duty is to inform the public about the UMC option. Its specific duty when faced with a client like Fletcher who explicitly requests maximum coverage is either to provide the coverage requested or, if it is not providing it, to inform him clearly and unequivocally that he does not have the maximum and that there is a gap in his coverage. The trial judge concluded that absent such unequivocal notice from MPIC Fletcher's honest interpretation of the renewal form was reasonable.

The crucial point of difference between the trial judge's conclusion and that reached by the Court of Appeal concerned the flyer that was mailed out with Mr. Fletcher's renewal form in which brief mention was made of the existence of UMC. The passage pertaining to UMC consisted of nine lines of small print in the space of one inch at the very bottom of the left hand column of the one-page flyer. The trial judge found that the flyer was misleading when read together with Mr. Fletcher's renewal form. He accepted that the appellant, had he read the flyer, would reasonably have understood it to mean that UMC was not applicable to him since he had already obtained what he thought was the maximum coverage. He concluded that the appellant had been misled.

The majority of the Court of Appeal did not think that the combination of the renewal form and the flyer was misleading and therefore held that MPIC had fulfilled its duty to inform Fletcher. Morden J.A. reached this conclusion with virtually no consideration of the box in the renewal marked "NOT APPLIC." In his view, the flyer alone was sufficiently clear to have removed any doubts that Fletcher might have had about UMC. Finlayson J.A. also found the flyer to be straightforward but went on to assess the effect of the renewal form. He said at p. 199:

To compound matters, when he made the crucial renewal application, he took no exception to the fact that the box opposite "underinsured motorist protection" was marked "not applic.". The trial judge interpreted Fletcher's evidence that this meant "not applicable to him" in the sense that "this coverage is not available". However, we must look at it from M.P.I.C.'s point of view as well. Fletcher had not purchased this coverage previously and so, when M.P.I.C. calculated his insurance premium, this cost was not included.

In my opinion, the application for renewal, particularly when read with the enclosed flyer, was not ambiguous. It was very clear.

I note that the appellants did not argue that the flyer, standing alone, was unclear or ambiguous in its description of UMC. Their submission was that the renewal form when read with the flyer was ambiguous and misleading or at least was not sufficiently clear and unequivocal to "cure" MPIC's antecedent omission to inform Fletcher of the availability of UMC when he first purchased his Autopac policy.

The insurer's duty is to provide sufficient timely, clear and accurate information to its customers about the various options so that they can make informed choices about what level of risk beyond that required by law they want to insure themselves against. At issue in this appeal, then, is the question whether MPIC's communication was clear enough.

In cases where wording in an insurance contract is unclear or ambiguous Canadian and English courts have consistently applied the contra proferentem rule of construction: see, for example, Indemnity Insurance Co. v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169, per Estey J. at pp. 179-80. In Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, Estey J. explained the rule at p. 899:

Insurance contracts and the interpretative difficulties arising therein have been before courts for at least two centuries, and it is trite to say that where an ambiguity is found to exist in the terminology employed in the contract, such terminology shall be construed against the insurance carrier as being the author, or at least the party in control of the contents of the contract.

Professors Brown and Menezes state at p. 138 of Insurance Law in Canada (1982) that the "basis for the rule is that the burden of an irreducible ambiguity should fall on the drafter."

In Scott v. Wawanesa Mutual Insurance Co., 1989 CanLII 105 (SCC), [1989] 1 S.C.R. 1445, La Forest J. approved of the approach to the interpretation of insurance contracts set out in Consolidated-Bathurst and stressed that the words employed should be given their ordinary meaning, "such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to [them]" (at p. 1455). He continued at pp. 1458-59:

Policies of insurance are prepared by the insurers and in doing so they not unnaturally are minded to protect their own interests. To avoid the consequent injustices that may ensue to an insured, courts have long insisted that any ambiguity be resolved in favour of the insured.

Given the rationale that underlies the doctrine of contra proferentem, it is just as appropriate to apply it to the renewal form sent to the holder of the insurance policy as to the contract itself. The renewal form is an integral part of the process of buying insurance coverage and is the one document most likely to be read by the insured. If it contains words or terms which, when given their ordinary meaning, still produce ambiguity in the mind of the policyholder, that ambiguity must be resolved in favour of the policyholder.

In my view, MPIC's communication was insufficiently clear to discharge its duty of care. Its initial failure to inform Fletcher of the availability of UMC is conduct that clearly falls below the standard of care that MPIC owed to its customers. MPIC contends that since no harm had yet occurred it was able to "cure" this omission after the fact by means of a written notice to the appellants. But since MPIC chose to communicate by mail it was incumbent upon it to make sure the written materials it sent out were cast in the clearest of terms. All manner of customers would have received the renewal form and flyer, some more conversant in insurance than Mr. Fletcher and some less. The flyer contained nothing in particular to draw the attention of the average customer to the small print that mentioned the UMC option and these few lines simply did not convey with sufficient clarity or seriousness the availability, importance and relatively low cost of UMC. The renewal form that Mr. Fletcher received was ambiguous as regards UMC. In my opinion, the words "NOT APPLIC." are very confusing in the context in which they appear. I agree with the appellants that something like "NOT COVERED" would have been a much more appropriate way of making clear that this form of coverage was available to them and that they did not have it. The ambiguity must be resolved in favour of the appellants.

Since Mr. Fletcher went to the MPIC offices to pay for his renewal in person, it is possible that MPIC could have "cured" its initial omission to inform him about UMC at that time. However, the trial judge found that he was not told about UMC on that occasion either. There was a single poster placed at the end of a long busy counter advertising the availability of UMC. McKeown J. found that it was unlikely that Fletcher would have seen it and accepted his evidence that he did not see it. I see no reason to disturb these findings of the trial judge. These half-measures were plainly inadequate to fulfil the duty that MPIC owed to the appellants.

I conclude therefore that MPIC failed in its duty to the appellants. MPIC's acts or omissions deprived Mr. Fletcher of the relevant information initially and, given that he was subsequently misled by the renewal form and flyer, he was never in a position to make an informed choice about this optional coverage.

4.If the insurer did not fulfil its duty, is it liable for the appellants' loss?

The respondent submits that even if it had provided more information in its flyer, Mr. Fletcher would not have purchased UMC since he failed to read the flyer. Therefore, MPIC argues that it should not be held liable for the appellants' loss since its acts or omissions did not cause that loss. Mr. Fletcher was the author of his own misfortune.

This argument is without merit. The finding that MPIC did not discharge its duty to inform the appellants does not hinge solely on the adequacy or inadequacy of the flyer. Rather, it rests on the combined effect of MPIC's initial omission to tell Mr. Fletcher about UMC when he first bought his coverage, the misleading renewal form and flyer, and MPIC's failure to mention UMC when he paid for his renewal in person. Faced with this combination of acts and omissions by the respondent, the appellants cannot be viewed as the authors of their own misfortune.

The trial judge found that Mr. Fletcher would have purchased UMC had he been told of its availability. Had MPIC not breached its duty, the Fletchers would have been covered against loss caused by an underinsured motorist up to a limit of $2,000,000. The shortfall between the underinsured motorist's insurance and the appellants' loss was $887,090. I therefore find that the respondent's breach of duty caused the appellants' loss and hold it liable for damages in the amount of the shortfall.

5. Did the trial judge err in awarding the appellants their costs on a solicitor and client basis?

On March 9, 1987, some two months before trial, the appellants duly filed an "Offer to Settle" for the amount of $650,000 plus prejudgment interest. That offer was not accepted by MPIC. One of the terms of the offer was that the appellants "shall have the right to structure all or part" of the sum. McKeown J. awarded costs to the appellants on a solicitor and client basis because of MPIC's refusal to settle on these terms.

Rule 49.10(1) of the Ontario Rules of Civil Procedure, O. Reg. 560/84, confers an entitlement to solicitor and client costs on a plaintiff who has made an offer to settle which turns out to be the same as or less favourable than the judgment obtained and that offer is rejected by the defendant. The purpose of this rule is to induce settlements and avoid trials and to provide predictability with respect to costs: see Jacuzzi Canada Ltd. v. A. Mantella & Sons Ltd. (1988), 31 C.P.C. (2d) 195 (H.C.).

MPIC argues that because the offer to settle was not a lump sum but a structured settlement it is not possible to determine whether the offer is more or less favourable than the judgment and so the rule cannot apply. In the alternative, the respondent maintains that the offer was less favourable because the administrative costs involved in a structured settlement might be significant. Both of these arguments ignore the fact that there are standard and generally accepted actuarial principles by means of which the present value of future sums payable can be calculated. Even assuming the truth of MPIC's contention that the "valuation of a structured settlement is extremely complex" for which highly specialized accountants would be required, I cannot accept that it would cost more than the difference between the offer and the damage award ($237,090) to arrive at the value of a structured settlement. The onus is clearly on the respondent to show that the offer was in fact less favourable than the judgment award. It has not met this burden. I therefore see no reason to interfere with the order of the trial judge as to costs.

Disposition

I would allow the appeal and restore the order of the trial judge as to both damages and costs.

Appeal allowed with costs.

Solicitors for the appellants: Lerner & Associates, London.

Solicitors for the respondent: Osler, Hoskin and Harcourt, Toronto.

• Chief Justice at the time of judgment.