In Echelon General Insurance Company v. Unifund Assurance Company, the Ontario Court of Appeal held that recovery of adjusting expenses, such as legal fees, adjuster’s fees, administrative costs, and disbursements, are generally not available in the context of priority disputes.
Background
In this case, the dispute arose from a motor vehicle accident in July 2012. The claimant submitted her claim to Echelon, the insurer of the vehicle in which she was a passenger. Echelon complied with its obligations and paid benefits to the claimant but also served a notice of dispute on Unifund, the claimant’s father’s automobile insurer.
The priority dispute between Echelon and Unifund eventually went to arbitration before Arbitrator Bialkowski, who found that Unifund was the priority insurer. Accordingly, Arbitrator Bialkowski ordered Unifund to reimburse Echelon for the benefits it had paid to the claimant and costs relating to the arbitration. In a supplemental decision, Arbitrator Bialkowski declined to order that Unifund reimburse Echelon for the money it spent defending and adjusting the claim (totalled more than $100,000.00).
Echelon appealed the Arbitrator’s denial of its expense reimbursement claim to the Superior Court of Justice. The appeal judge allowed the appeal, finding that the doctrine of unjust enrichment entitled Echelon to be reimbursed by Unifund “for those reasonable expenses that were incurred for the ultimate benefit of Unifund.”
This decision was appealed to the Court of Appeal.
Decision
Justice Dawe, writing for a unanimous panel, agreed with the Arbitrator that the drafters of the legislation intentionally chose to limit the recovery of expenses in cases where an insurer has deflected a claim, as specifically allowed by s.2.1(7) of O.Reg 283/95.
The Court of Appeal also agreed with the Arbitrator’s comments regarding the limited application of the doctrine of unjust enrichment, emphasizing that indemnity claims for expenses incurred beyond the actual accident benefits paid would only be recoverable if there were special circumstances and only “in the most extreme of cases.” However, the Court did not delve further into this comment as the parties had agreed that no such circumstances were involved in the case before it and found it was best left to an appeal where the issue actually arises.
The Court of Appeal also acknowledged the concerns the Motor Vehicle Accident Claims Fund raised about its special status as the payer of last resort imposed by statute, given that its costs come from public funds. However, the Court declined to decide on this issue as the Fund was not a party and had no decision before the Court in the context of an appeal. Instead, the Court noted that the Fund could seek legislative amendment to clarify whether any special considerations would apply in the case of costs incurred by the Fund.
Conclusion
This decision is important for insurers, claims professionals, and counsel as it clarifies the insurer’s ability to recover claims administration expenses in a priority dispute. Specifically, reimbursement is only available if section 2.1(7) of O.Reg 283/95 applies or, in rare circumstances, as an equitable remedy such as unjust enrichment. However, the extent of the latter option is still uncertain and likely not an option in most cases.
Ultimately, this decision emphasizes the importance of all parties trying to resolve these disputes as quickly as possible. However, practically speaking, this decision will likely not encourage respondent insurers to resolve priority disputes. Without the risk of possibly being responsible for reimbursing administrative expenses, a responding insurer now has a disincentive to admit priority early. Considering this, it may be beneficial to amend O.Reg 283/95 to allow for the recovery of handling expenses under certain circumstances, or, at the very least, to grant an arbitrator some discretion to award such reimbursement.
See Echelon General Insurance Company v. Unifund Assurance Company, 2025 ONCA 324, https://canlii.ca/t/kbtjx
