Can an insurer recover an amount paid in excess of the amount the insured suffered? The Court of Appeal recently provided guidance on the overarching principles of how an insurer can approach a situation such as this.
Gore Mutual Insurance Company v. Carlin, 2018 ONCA 628 arises as a result of a fire loss incident that occurred on September 27, 2012 at the Defendants/Respondents’ dentistry practice. Following the incident, the insurer Plaintiff/Appellant, Gore Mutual, made a series of payments to the its insured, a dentist, Dr. George Carlin and his professional corporation, prior to the determination of the total loss, including a $750,000 advance. An appraisal for the property occurred in May 2014 where the amount found to be payable by Gore was $713,767.33. To that amount was added an agreed sum for business interruption loss ($205,444.00) and $7,465.70 for professional fees. The total amount payable by Gore was $926,677.03. Unfortunately, at this time, Gore had already paid out $1,030,187.04. It sued to recover the overpayment of $103,510.01.
On motion for summary judgment, Justice Kershman for of the Superior Court of Justice found that even though the $750,000 payment was referred to as an advance, it was not in fact one as it was paid on the basis that it could be used as Dr. Carlin saw fit. He also found that the payment was deliberate and not the product of mistake. He noted that both Gore’s policy and the Insurance Act were silent regarding what happened when an overpayment was made. Justice Kershman rejected Gore’s claim of unjust enrichment on the ground that Dr. Carlin obtained no benefit when they received the $750,000 payment and there was a juristic reason for sending the money, as the the insured could use the money as they wished.
The Court of Appeal disagreed. Writing for the panel which included Justice Kathryn Feldman and Justice David Brown, Justice William Hourigan wrote that a contract of insurance is a contract of indemnity and not a vehicle for turning misadventure into profit. They found that Dr. Carlin was not bound by the advance payment, as it was just that, pending the determination of the actual cash value through the appraisal process. The Court held that contracts of insurance are to be interpreted in a manner that results in neither a windfall to the insurer nor an unanticipated recovery to the insured. The Court of Appeal also found Dr. Carlin was unjustly enriched.
One should be cognizant of the fact that a fundamental principle in cases similar to this is a contract of insurance is a contract of indemnity. This is consistent with the principles of insurance and guidelines in the Insurance Act.