On October 2, 2019, Arbitrator Bialkowski’s decision of MVACF and Travelers addressed the issue of whether a successful party in a priority dispute decision is entitled to recover incurred adjusting costs in addition to benefits paid to or on behalf of the Applicant, on the basis of unjust enrichment.
The Fund received an Application for Accident Benefits on August 1, 2017 and a Notice of Dispute was served by Claims Pro on behalf of the Fund on August 31, 2017. Following the priority EUO of the Applicant, Travelers agreed that it was the priority insurer and accepted the claim.
The Arbitration specifically dealt with the adjusting fees relating to the underlying accident benefits claim and investigation of priority in the amount of $5,213.03.
The Fund based its argument in support of its recovery of adjusting costs upon the doctrine of unjust enrichment, reviewed in the Supreme Court in Kerr v. Baranow, 2011 SCC 10, which stated a successful claim for unjust enrichment must show that the defendant has been enriched, the claimant suffered a corresponding detriment and there is no “juristic reason” for the enrichment.
Arbitrator Bialkowski provided a brief historical analysis of recoverability of adjusting fees.
Arbitrator Malach’s decision in Certas Insurance Company v. Allstate Insurance Company (November 2004) is one of the earlier cases addressing the recoverability administrative expenses in a priority dispute. Arbitrator Malach held that the adjusting expenses incurred by the first insurer were not recoverable. Arbitrator Malach stated that the legislation was silent with respect to the recovery of administrative expenses and concluded that the legislative intent was that each insurer would bear its own expenses of handling its claim, noting a hearing to determine the reasonableness of the expenses could take longer than a hearing on the substantive issues.
Arbitrator Jones in Zurich Insurance Company v. Co-operators Insurance Company (January 2007) found that he had the authority, if supported by the facts of the dispute, to award the recovery of administrative expenses stating,
“Nothing in my decision should be read to mean that there is no situation where such legal expenses are recoverable. In the ordinary course, for reasons expressed above, those costs are not to be recovered. There may be situations, however, where an insurer deliberately refuses to accept priority, simply do avoid expenses. They do so at their peril.”
The Fund referred Arbitrator Bialkowski to the decision of Ontario (Minister of Finance) v. Lombard Insurance Co. of Canada, 2010 ONSC 1770, where Justice Perrell accepted the principle that an arbitrator has the jurisdiction to order reimbursement beyond the repayment of statutory benefits.
Arbitrator Bialkowski agreed with the Certas decision and confirmed that the legislative intent was to have each insurer bear its own expense of handing an insured’s accident benefit claim. He stated that for every priority dispute where an Applicant insurer is denied recovery of the legal and adjusting costs of defending the underlying accident benefits claim, it will be the Respondent in another priority dispute where it will have to pay those same legal and adjusting costs. In other words, it is the cost of doing business.
Although Arbitrator Bialkowski did not find the principle of unjust enrichment was applicable on the facts before him, he outlined certain “special” circumstances where the equitable jurisdiction of unjust enrichment is applicable. This could include disputes where an insurer has deliberately refused to accept priority in clear circumstances where it ought to have in order to simply avoid the expense of adjusting or defending a first party claim. On those facts, Arbitrator Bialkowski would consider recovery of IA fees on the basis of unjust enrichment.
Arbitrator Bialkowski also rejected the Fund’s submission that its special status as a payor of last resort under the priority regulation entitled it to reimbursement of adjusting expenses as this would entitle it to reimbursement in all cases where another insurer is found to stand in priority, contrary to arbitral and judicial consideration of reimbursement in priority disputes. He also noted that full indmenity costs, including IA fees, is specifically available when an insurer improperly deflects the claim. Had the legislature intended for IA fees to be repaid in other circumstances as a matter of course, it would have indicated so in O. Reg. 283/95.
This decision cautions Insurers to avoid expensive private arbitration hearings over relatively small amounts while maintaining, in the right case, an insurer's ability to claim repayment for IA and other investigation fees where the second insurer's conduct is unreasonable or designed to force the first insurer to incur expenses where it is clear that the second insurer should accept priority for the claim.