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Insurance - Auto - Liability Priority. Echelon General Insurance Company v. Unifund Assurance [priority liability allocation for pre-arbitration expenses]
In Echelon General Insurance Company v. Unifund Assurance (Ont CA, 2025) the Ontario Court of Appeal allowed a second insurance appeal, here from a first allowed appeal to the Superior Court, that from a decision where an "arbitrator declined to order that the appellant, Unifund Assurance (“Unifund”) pay the expenses incurred by the respondent, Echelon General Insurance Company (“Echelon”)".
Here the court considers auto insurer SABS 'priority' rules under IA s.268(2). It also addresses who is responsible for pre-arbitration SABS-related expenses incurred before the priority issue is resolved, and an argument that restitution (unjust enrichment) can apply to such an issue (SS: it can't, see paras 20-48):A. The statutory scheme
[4] Section 268 of the Insurance Act, R.S.O. 1990, c. I.8, creates a priority scheme for determining which insurer must pay SABs to an automobile accident victim. In descending order of priority, accident victims have recourse against:(i) Their own insurer, if they have an automobile insurance policy;
(ii) If they were travelling in a motor vehicle at the time of the accident, the insurer of that vehicle or, if they were not travelling in a motor vehicle, the insurer of the vehicle that struck them;
(iii) The insurer of any other vehicle involved in the accident; or
(iv) The Motor Vehicle Accident Claims Fund (“the Fund”), as established by the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41. The Fund is administered by the Minister of Public and Business Service Delivery and Procurement (“the Minister”), who intervenes in this appeal.
[5] Priority disputes between different insurers are governed by O. Reg. 283/95, titled “Disputes Between Insurers” (“Regulation 283”), which was amended in 2010 by O. Reg. 38/10. This court has previously held that “the Fund is an insurer under Regulation 283”: Allstate Insurance Company of Canada v. Motor Vehicle Accident Claims Fund, 2007 ONCA 61, 84 O.R. (3d) 401, at para. 35; Kingsway General Insurance Company v. Ontario, 2007 ONCA 62, 84 O.R. (3d) 507, at para. 6.
[6] Section 1 of Regulation 283 provides that:All disputes as to which insurer is required to pay benefits under section 268 of the Act shall be settled in accordance with this Regulation. [7] In summary, Regulation 283 requires SABs claimants to apply “to only one insurer.” Insurers must accept any applications they receive and must begin paying benefits to the claimant, “pending the resolution of any dispute as to which insurer is required to pay the benefits”: ss. 2 and 2.1.[1] If an insurer believes that some other insurer or the Fund should have priority, it must give notice within 90 days: ss. 3 and 3.1. If insurers cannot agree about who is responsible for paying the benefits, they must submit their dispute to arbitration: s. 7.
[8] When an insurer who receives an application for SABs fails to comply with its obligations to pay the claimant while any priority dispute is being resolved, this is commonly referred to as “deflection”: see e.g., State Farm Mutual Automobile Insurance Company v. TD Home & Auto Insurance Company, 2016 ONSC 6229, at para. 15. The 2010 amendments to Regulation 283 authorize arbitrators to impose sanctions on insurers who improperly deflect claims. One of these sanctions is found in s. 2.1(7), which provides:(7) An insurer that fails to comply with this section shall reimburse the Fund or another insurer for any legal fees, adjuster’s fees, administrative costs and disbursements that are reasonably incurred by the Fund or other insurer as a result of the non-compliance. Neither the Insurance Act nor Regulation 283 contain any other provision that expressly authorizes arbitrators to order that one insurer pay another insurer’s expenses in situations where s. 2.1(7) does not apply.
B. Factual background and procedural history
[9] The dispute in this case arose out of a claim for benefits by a woman who was injured in July 2012 in an accident that occurred when she was riding as a passenger in a vehicle insured by Echelon. She submitted her claim to Echelon in August 2012. Because the accident occurred after September 1, 2010, her claim was subject to s. 2.1 of Regulation 283. Echelon was required by s. 2.1(6) to pay benefits to the claimant even if it believed that some other insurer stood in higher priority under s. 268 of the Insurance Act, pending a determination of this issue.
[10] Echelon complied with its obligations under s. 2.1 and paid benefits to the claimant, but also served a notice of dispute on Unifund, which was the claimant’s father’s automobile insurer. Echelon maintained that the claimant was her father’s dependant. If so, this would bring her under her father’s automobile insurance policy and thus make Unifund the priority insurer.
[11] The priority dispute between Echelon and Unifund eventually went to arbitration. In July 2018, Arbitrator Bialkowski released his decision finding that Unifund was the priority insurer. He ordered Unifund to reimburse Echelon for the benefits it had paid to the claimant, as well as its costs relating to the arbitration. Unifund has not challenged these aspects of the arbitrator’s award.
[12] However, the parties could not agree on whether Unifund should also reimburse Echelon for the money it had spent defending and adjusting the SABs claim before the arbitration decision shifted responsibility for the claim to Unifund. These expenses, which totalled more than $100,000, included independent adjusting fees, mediation fees, legal costs, and disbursements. In December 2019 the arbitrator released a supplemental decision in which he declined to order that Unifund reimburse Echelon for these expenses.
[13] 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.”
[14] Unifund now appeals to this court, having previously been granted leave.
C. ANALYSIS
[15] As the arbitrator and the appeal judge both noted in their reasons, arbitrators and lower courts have divided over whether arbitrators deciding priority disputes under Regulation 283 may routinely order one insurer to reimburse another insurer for its pre-arbitration expenses, outside of situations where s. 2.1(7) of Regulation 283 applies. The only two judicial decisions that appear to have addressed this issue both predate the 2010 amendments to Regulation 283 that added s. 2.1: see Zurich Insurance Company v. Co-Operators General Insurance Company (2008), 2008 CanLII 19786 (ON SC), 62 C.C.L.I. (4th) 207 (Ont. S.C.); R. v. Lombard Insurance Co. of Canada, 2010 ONSC 1770, 100 O.R. (3d) 51.
[16] Although neither the Insurance Act nor Regulation 283 expressly empowers arbitrators to make expense reimbursement orders in circumstances where s. 2.1(7) does not apply, s. 8(1) of Regulation 283 makes priority dispute arbitrations subject to the Arbitration Act, 1991, S.O. 1991, c. 17, which authorizes arbitrators to resolve disputes “in accordance with law, including equity”: Arbitration Act, 1991, s. 31.
[17] The appeal judge disagreed with the arbitrator’s conclusion that the drafters of Regulation 283 had made a deliberate policy choice to limit reimbursement orders to the “deflection” cases where s. 2.1(7) applies. Instead, he followed Perell J.’s decision in Lombard and concluded that the equitable doctrine of unjust enrichment permits arbitrators to make expense reimbursement orders, even when there has been no deflection and s. 2.1(7) is thus unavailable.
[18] The question we must decide on this appeal is whether Regulation 283 should be interpreted as reflecting a deliberate governmental policy choice to have insurers bear any expenses they incur handling SABs claims before an arbitrator finds that a different insurer has priority. The equitable doctrine of unjust enrichment requires an enrichment and a corresponding deprivation to have “occurred without a juristic reason”: see Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 40. If the arbitrator was correct to interpret Regulation 283 as limiting his authority to make an expense reimbursement order, this regulatory restriction would constitute a “juristic reason” for any resulting enrichment to Unifund and deprivation suffered by Echelon: Kerr, at para. 41.
[19] The proper interpretation of Regulation 283 is a question of law that is reviewable on a correctness standard: see e.g. Wong v. Lui, 2023 ONCA 272, 167 O.R. (3d) 92, at para. 16.
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[21] This court has previously identified the overarching goals of the priority scheme in s. 268 of the Insurance Act. In Allstate, at paras. 38-39, Laskin J.A. noted that s. 268 and Regulation 283, when taken together with the statutory creation of the Fund in the Motor Vehicle Accident Claims Act, “comprise an integrated legislative and regulatory scheme for the payment of accident benefits”, the main purposes of which are “the prompt delivery of accident benefits to injured persons and the timely and cost-efficient resolution of disputes over who should pay those benefits.” Regulation 283, in particular, is designed “to ensure that injured persons receive accident benefits promptly, despite any disputes between insurers over who should pay these benefits”: Allstate, at para. 24; Ontario (Finance) v. Echelon General Insurance Company, 2019 ONCA 629, 147 O.R. (3d) 1, at para. 12. Requiring priority disputes between insurers to be resolved through arbitration rather than by the courts can also be seen as serving the legislative goal of having these disputes resolved in a “timely and cost-efficient” manner.
[22] A further important contextual factor that must be borne in mind is that Regulation 283 governs disputes between sophisticated participants in the highly regulated Ontario automobile insurance market. In Kingsway General Insurance Co. v. West Wawanosh Insurance Co. (2002), 2002 CanLII 14202 (ON CA), 58 O.R. (3d) 251 (C.A.), at para. 10, Sharpe J.A. explained:The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to this Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other. In this context, it seems to me that clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases. [Emphasis added.] [23] Section 2.1(7) of Regulation 283 requires insurers who improperly deflect SABs claims, by not complying with their obligations under s. 2.1, to “reimburse the Fund or another insurer for any legal fees, adjuster’s fees, administrative costs and disbursements that are reasonably incurred by the Fund or other insurer as a result of the non-compliance.” The arbitrator in the case on appeal treated the limited reach of s. 2.1(7) as significant, reasoning:[H]ad [the drafters] intended to allow an insurer and the Fund to recover adjuster’s fees in all cases where another insurer was found in priority, and not simply where there has been a deflection, such an entitlement would have been found in the amendments of O. Reg. 283/95 as set out in O. Reg. 38/10. ....
[30] The arbitrator accepted that this was the drafters’ objective, concluding that “[t]he avoidance of this additional layer of costs provides a strong policy basis” for interpreting Regulation 283 as only permitting expense reimbursement orders in exceptional situations. He added:The reality of the situation is that for every priority claim whereby the insurer or the Fund is seeking indemnity (without recovery of adjusting fees), there will be priority claims that the same insurer or the Fund is ordered to indemnify benefits (without payment of adjusting fees). It should all balance out without the necessity of having to incur a second layer of costs.
The arbitrator also noted that if a priority insurer “deliberately delays the arbitration process far beyond reason to avoid the expense of adjusting the first party claim or defending it”, this might be an exceptional circumstances that would justify using the doctrine of unjust enrichment to make an expense reimbursement award. ....
[36] In my view, the available indicators in this case all support the arbitrator’s conclusion that the Lieutenant Governor in Council intentionally chose to limit expense reimbursements to the deflection cases to which s. 2.1(7) applies. It is also plausible that it made this choice because, as the arbitrator concluded, it believed it would reduce the length and cost of priority arbitrations. If the Lieutenant Governor in Council had been trying to implement the competing policy objective that the appeal judge found “preferable” – that is, letting lower-priority insurers routinely recoup their pre-arbitration expenses, in order to remove higher-priority insurers’ incentive to delay taking responsibility for SABs claims – one would again expect the Lieutenant Governor in Council to have gone about this directly, by making express provision in the regulation for arbitrators to make expense reimbursement orders even when there has been no improper deflection.
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[39] When Regulation 283 was introduced in 1995, it was meant to address a specific problem created by the s. 268 Insurance Act priority scheme: namely, “[t]he historic refusal of insurers to pay benefits before their liability had been established through litigation”: Travelers Insurance Company of Canada v. CAA Insurance Company, 2020 ONCA 382, 151 O.R. (3d) 78, at para. 34. As Laskin J.A. noted in Allstate, at para. 23, Regulation 283 “was passed after consultation with the insurance industry.” The Lieutenant Governor in Council did not have the option of reversing the legislature’s decision to have a priority scheme in the first place. It could nevertheless have concluded that it would be good policy to try to reduce the cost of priority dispute arbitrations by limiting the issues that could be litigated.
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[41] I also agree with Unifund that there is no assurance that disputes between insurers over expenses will always be straightforward. For example, insurers may disagree over whether it was reasonable for an insurer to have spent money on external adjusting fees, investigations, or mediations. A higher-priority insurer may contend that it gained no benefit from these expenses, and thus was not “enriched”, because it would not have incurred them had it been handling the SABs claim itself. Even if the appeal judge was right in his assumption that disputes between insurers over the reasonableness of expenses will be rare, it does not follow that the Lieutenant Governor in Council could not have decided that it would still reduce costs, and thus ultimately lower the price of automobile insurance, to make these disputes non-arbitrable in those cases where they do arise.
[42] Considering all of these factors together, I conclude that the balance tips in favour of interpreting Regulation 283 as reflecting a deliberate regulatory policy choice to have insurers ordinarily bear their own pre-arbitration expenses, unless there has been improper deflection of a SABs claim.
[43] It is difficult to imagine that the persons who drafted Regulation 283, in close consultation with insurance industry participants, did not realize that insurers who comply with s. 2.1 of the regulation will often spend money administering SABs claims that are eventually found to be the responsibility of a different insurer. If the Lieutenant Governor in Council had meant to let lower-priority insurers routinely claim reimbursement for these expenses in priority dispute arbitrations, it would have been easy to have provided for this expressly in the regulation.
[44] Instead, when Regulation 283 was amended in 2010, the Lieutenant Governor in Council added a new provision that specifically makes these expenses reimbursable in deflection cases, as a sanction for insurers’ non-compliance with their s. 2.1 obligations. At a minimum, the 2010 amendments demonstrate that the Lieutenant Governor in Council was aware that insurers commonly incur “legal fees, adjuster’s fees, administrative costs and disbursements” during the pre-arbitration period. The Lieutenant Governor in Council’s decision to single out deflection cases for special treatment strongly implies that they did not expect arbitrators to routinely make reimbursement orders in other cases.
[45] Importantly, the persons who drafted the 2010 amendments can also be presumed to have been aware of this court’s statements eight years earlier in Kingsway, at para. 10, regarding the proper interpretive lens for viewing Regulation 283, in which “clarity and certainty of application are of primary concern”, and where “there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.” This makes it especially unlikely that the Lieutenant Governor in Council intended to let arbitrators invoke general equitable principles to make expense reimbursement orders on a case-by-case basis, even when there has been no improper deflection and s. 2.1(7) thus does not apply.
[46] Finally, this interpretation of Regulation 283 can be understood as reflecting a deliberate choice by the Lieutenant Governor in Council to give priority to the policy goal of reducing the length and cost of arbitrations, even if this creates some potential for unfairness in particular cases. As counsel for the Minister points out, any unfairness to some insurers is mitigated by the fact that the premiums for automobile insurance are set at a level that is meant to allow insurers both to recoup their adjustment expenses and make a reasonable profit.
[47] I accordingly conclude that the appeal judge erred in his interpretation of Regulation 283. I would allow Unifund’s appeal, set aside the appeal judge’s expense reimbursement order, and restore the decision of the arbitrator finding that Unifund is not obliged to reimburse Echelon for its pre-arbitration expenses in this case. . BelairDirect Insurance Company v. Continental Casualty Company
In BelairDirect Insurance Company v. Continental Casualty Company (Ont CA, 2023) the Court of Appeal considered a priority/coverage ['duty to defend'] contrast between the SABS auto and the tort auto insurance regimes:[2] The Continental Casualty Company issued a policy of insurance that included third party liability coverage for the lessee/driver. BelairDirect Insurance Company (“Belair”) did not. Nonetheless, Continental contends that the application judge erred in holding that it, rather than Belair, is the priority insurer under s. 277(1.1) of the Insurance Act, R.S.O. 1990, c. I.8 (the “Act”)[1] and has a duty to defend the lessee/driver in the underlying personal injury action.
....
[6] In November 2016, Mr. Sarantakos and WTH were sued for $2,100,000 (the "personal injury action") by the driver of the other vehicle involved in the accident and her husband (the “plaintiffs”).
[7] Continental appointed counsel (“Continental’s counsel”[2]) to defend the personal injury action. As a matter of course, Continental’s counsel conducted a priorities investigation to determine whether there was other insurance responsible for responding to the personal injury action.
[8] Section 277(1.1) of the Act addresses the order in which the third party liability provisions of any available motor vehicle liability policies shall respond “in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of [a leased] automobile”. Section 277(1.1) requires that insurance available to a lessee or driver respond in priority to insurance available to an owner which is excess to the lessee’s or driver’s available insurance.
[9] Further, subject to certain exceptions, s. 267.12 of the Act caps the vicarious third party liability of rental car companies in respect of one incident at $1,000,000.
....
[21] Like the application judge, I see no basis for drawing an analogy between priority cases decided under the SABS priority regime and the priority/coverage issues in this case. There is no similar regulation to that governing the SABS priority regime applicable to priority/coverage disputes among tort insurers and the policy implications differ. The rule applicable in the SABS context exists to ensure prompt payment of SABS benefits by preventing priority disputes from delaying payment. The urgency is less pressing in the tort context. For priority disputes relating to tort liability, the principles on which Continental sought to rely (contract, estoppel, waiver) are properly applicable. . Ontario (Government and Consumer Services) v. Gore Mutual Insurance Company
In Ontario (Government and Consumer Services) v. Gore Mutual Insurance Company (Ont CA, 2023) the Court of Appeal considered the party liability priority under the Insurance Act [s.268(2)]:[1] The driver of an uninsured snowmobile was killed and a passenger was injured, after that vehicle, and an insured snowmobile that was accompanying it, struck a tree at almost the same time. Statutory accident benefits were payable for the injured passenger and for the death of the driver. The question that divides the parties is about who is liable to provide those benefits, Gore Mutual Insurance Company (“Gore”), the private insurer of the insured snowmobile, or the publicly funded Motor Vehicle Accident Claims Fund (the “Fund”).
[2] Section 268(2) of the Insurance Act, R.S.O. 1990, c. I.8, sets out rules for determining liability for statutory accident benefits. ...
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C. THE STATUTORY SCHEME AND THE ISSUE
[10] Section 268(2) of the Insurance Act sets out rules for determining who is liable to pay statutory accident benefits to an occupant of an automobile. Automobile is defined in the Insurance Act to include a snowmobile.
[11] In descending order of priority, those rules are:i. the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured,
ii. if recovery is unavailable under subparagraph i, the occupant has recourse against the insurer of the automobile in which he or she was an occupant,
iii. if recovery is unavailable under subparagraph i or ii, the occupant has recourse against the insurer of any other automobile involved in the incident from which the entitlement to statutory accident benefits arose,
iv. if recovery is unavailable under subparagraph i, ii or iii, the occupant has recourse against the Motor Vehicle Accident Claims Fund. [Emphasis added.]
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