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Prairie Risk Management Inc v Marsh Canada Ltd et al, 2023 MBKB 29

Desautels Blog Case Reporter

Written by Julian Brown 

Prairie Risk Management Inc v Marsh Canada Ltd et al, 2023 MBKB 29 highlights the importance of confidentiality, trust, and fiduciary duties in business relationships within the insurance sector. The case centers on Prairie Risk Management Inc’s (“PRM”) legal victory against Marsh for misappropriating confidential client information and causing significant business losses. The court’s decision highlights the legal expectations for protecting confidential information and the consequences of breaching contractual and fiduciary duties. By awarding over $1.5 million in damages to Mr. Duthoit (the original owner of PRM), the judgment sets a precedent in stressing the role of implicit contractual terms and fiduciary duties, serving as a reminder to the those entering relational contracts of the legal safeguards in place to uphold fairness and integrity in professional conduct.

Background 
Mr. Duthoit initiated legal proceedings against his insurance broker, Marsh, after the brokerage unlawfully misappropriated confidential information to acquire clients from his company, PRM. 


PRM arranges insurance solutions for small businesses in the Manitoba pork industry. Marsh served as its broker, responsible for securing insurance coverage for PRM and its clients. Following the termination of PRM’s partnership with Marsh, the latter engaged in a campaign that resulted in the acquisition of nearly 45 percent of PRM’s clientele, significantly undermining PRM’s revenue streams. As such, when PRM was sold two years later, its valuation was far below its potential worth. 

Consequently, Mr. Duthoit pursued legal action against Marsh, culminating in a successful claim for damages wherein the court awarded him more than $1.5 million. The court concluded that Marsh had breached its contractual commitments, alongside violating its duties related to confidentiality and fiduciary obligations.

Breach of contract

Justice Harris found that confidentiality was an implied term of the contractual relationship between the two parties, and that Marsh’s conduct breached that term. He employed the analytical framework established in Canadian Pacific Hotels Ltd to assess whether certain terms of a contract may be implied. The test involves consideration of whether a term is implied based on custom or usage, as the legal incidents of a particular class or kind of contract, or based on the presumed intention of the parties where the implied term is necessary to give business efficacy to a contract.[1]

Evidence revealed e-mails between senior Marsh executives who spoke about the importance of confidentiality with respect to their clients’ insurance information, attempts to have PRM sign a contract that included a confidentiality clause, and underwriting submissions including private information about PRM’s clients with confidentiality clauses attached to it. Justice Harris also considered the provincial insurance agent code of conduct, which mandates that brokers hold in strict confidence all information concerning the business and affairs of a client. Accordingly, it was established that the parties intended that PRM’s client information be treated as confidential, and that Marsh was in breach of contract for using this information for its own gain.  

Breach of confidence

Justice Harris reiterated the Supreme Court of Canada’s requirements for a breach of confidence as set out inLac Minerals. A breach of confidence requires that the information itself has the necessary quality of confidence about it, that it was imparted in circumstances importing an obligation of confidence, and that there was an unauthorized use of that information to the detriment of the party communicating it.[2]

In this case, these conditions were met because the information Marsh obtained from PRM included details of its clients’ operations with corresponding proprietary analysis, and it was conveyed in circumstances of confidentiality. 

Breach of fiduciary duty 

Lastly, Justice Harris considered the categories of fiduciary relationships described in Lac Minerals, noting that these categories are not closed and more can be added.[3] He also mentioned the “hallmarks” of a fiduciary duty as set out in Frame v Smith, which include an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary, a defined person or class of persons vulnerable to a fiduciary’s control, and a legal or substantial practical interest of the beneficiary that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.[4] In the end, Justice Harris notes that the goal of this type of analysis is to figure out whether one party has the right to expect that the other will act in the former’s interests to the exclusion of his own several interests.[5]

In this case, PRM provided confidential client information to Marsh so that the brokerage could use it to place insurance for PRM. The information was not given for any other purpose. Further, Marsh accepted the information on that basis. This gave rise to a fiduciary relationship, where PRM’s business interests could be and were affected by Marsh’s decision to exploit the information.

Damages

The court described Marsh’s conduct as “unlawful and reprehensible,” and leaned on equitable principles to arrive at damages in the amount of over $1.5 million in favour of Mr. Duthoit.[6]

Significance of the decision

Businesses entering relational contracts should be aware of the meaningful role that custom, usage, and implied terms play in these agreements, even when there is not an explicit written agreement detailing such terms. Custom and usage in particular industries or within specific types of business relationships often inform the interpretation of these contracts, providing a framework for understanding obligations that may not be explicitly stated. Implied terms, which arise from these customs, the nature of the relationship, or the necessities of the business arrangement, ensure that the contract remains functional and fair over its term, allowing for adjustments to unforeseen circumstances and maintaining the balance of the relationship. These elements underscore the dynamic nature of relational contracts, where the parties’ ongoing cooperation and adaptation are crucial. Furthermore, recognizing that fiduciary relationships can extend beyond traditional boundaries highlights the necessity for equitable remedies in instances where the strict application of common law does not sufficiently address a party’s grievances. This flexibility ensures that justice can be tailored to meet the unique needs and expectations inherent in relational contracts, thereby preserving the integrity and viability of long-term business partnerships.

Conclusion
This case illustrates the consequences of violating confidentiality, trust, and fiduciary obligations in business dealings. By awarding $1.5M in damages to Mr. Duthoit for the losses experienced by PRM, the court underscored the critical nature of implied contractual terms and the significance of customs and practices in shaping relational contracts. This case sets an important precedent and signals the judiciary’s commitment to safeguarding the integrity of business relationships and providing equitable remedies for unethical breaches.

[1] See Prairie Risk Management Inc v Marsh Canada Ltd et al, 2023 MBKB (CanLII) at para 29.

[2] Ibid at para 40. 

[3] Ibid at para 56. 

[4] Ibid at para 57. 

[5] Ibid at para 59. 

[6] Ibid at paras 71–72. 

The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.