By: Michael Blinick, Partner & Dylan Zamani, Articling Student
Preface
A recent decision arising from a dispute between Echelon General Insurance Company (“Echelon”) and Unifund Assurance Company (“Unifund”) addressed the applicability of the principle of unjust enrichment in priority disputes. The Court, in an appellate capacity, was asked to review the underlying decision and clarify whether the expenses that were incurred in adjusting a claim for Accident Benefits were recoverable from the insurer that was higher in priority pursuant to Section 268 of the Insurance Act.
Facts
On August 7, 2012, Echelon received a completed Application for Accident Benefits from a claimant involved in a motor vehicle accident. Echelon then adjusted the claim and paid benefits as they were due and owing in accordance with the policy’s provisions and the SABS.
Echelon initiated a priority dispute against Unifund to recover the benefits that it paid to the claimant. In addition, Echelon sought the costs that it incurred in adjusting the first party claim. Echelon’s costs (such as the adjusting fees, surveillance, mediation expenses and legal fees) were significantly increased as the claimant had suffered injuries that were found to be ‘catastrophic’. Echelon’s expenses were stated to be more than $100,000 (a fact that was not disputed by Unifund).
While the Arbitrator found Unifund was the insurer that was highest in priority for payment of the Accident Benefits in accordance with Section 268 of the Insurance Act, Echelon’s request for reimbursement for the various expenses it incurred in adjusting the claim were denied. The Arbitrator held that there were no special circumstances that would support the application of the doctrine of unjust enrichment in this instance as the reimbursement of expenses should only be reserved for “the most extreme cases”.
Analysis
The Court was asked to determine whether the Arbitrator erred in law in finding that Unifund is not required to reimburse Echelon for the costs and expenses incurred in adjusting the first party claim.
First, the Court found that arbitrators have the jurisdiction to award for the reimbursement of administrative expenses in priority disputes, and not simply award for the repayment of statutory benefits.
The Court then set out that for unjust enrichment to be available, the following three elements are required to be established:
An enrichment of or benefit to the defendant, a corresponding deprivation of the plaintiff, and the absence of a juristic reason for the enrichment.
The Court also held that the Arbitrator erred in finding that unjust enrichment could only be applied to extreme cases, as the regulations make no reference to “extreme” or “special” circumstances.
Upon reviewing the specific facts relevant to the dispute at issue, it was then found that Echelon had paid adjusting and legal expenses as part of its defence to a first party claim that it was not ultimately found to be responsible to pay. These expenses paid by Echelon were found to have saved Unifund from having to incur similar expenses.
When assessing whether there was a “juristic reason” for the enrichment, the Court referred to the Supreme Court decision in Kerr v. Baranow, 2011 SCC 10, which held that an absence of juristic reason in the context of unjust enrichment “…means that there is no reason in law or justice for a party’s retention of the benefit that was conferred by the other party”.[1] While the Arbitrator found that the juristic reason in this instance was as a result of Ontario Regulation 283/95 not specifying that an insurer was able to recover expenses in addition to benefits, the Court found that the Regulation applies to all disputes to which an insurer is required to pay benefits under section 268 of the Insurance Act, including the reimbursement of reasonable expenses. The Court also rejected the Arbitrator’s public policy “balancing” argument – that an insurer should bear its own expenses of handling the accident benefits claim on the notion that the same insurer will eventually be the non-paying insurer in another priority dispute.
Ultimately, the Court found that arbitrators have the jurisdiction to award for the reimbursement of administrative expenses in priority disputes, beyond simply awarding the repayment of statutory benefits. The Court concluded that the legislation allows Echelon to be reimbursed for the expenses that it incurred in adjusting the claim. The Court rejected the Arbitrator’s finding that the equitable jurisdiction to order reimbursement of expenses should only be used in “the most extreme of cases” or that special circumstances were required before applying the doctrine of unjust enrichment.
Closing remarks and future implications for insurers
Moving forward, insurers that seek to transfer priority for the payment of accident benefits should be attentive to the expenses being incurred throughout the handling of the accident benefits claim as the expenses incurred in adjusting the underlying accident benefits claim are now recoverable – something that arbitrators have historically been reluctant to grant. Conversely, there should now be a greater incentive for insurers that are higher in priority to promptly assess and, if appropriate, accept priority so as to minimize the exposure to recovery of the expenses incurred in adjusting the claim. While it will ultimately be up to the arbitrators to decide what quantum of the claimed expenses are reasonable recoverable expenses, the exposure will certainly be greater the longer that a dispute takes.
It is also important to flag that this decision will likely complicate future priority disputes, as having the Arbitrator adjudicate entitlement to claim expenses will increase the scope of the matters at issue in disputes between insurers.
[1] Kerr v. Baranow, 2011 SCC 10, at para 40.