Just the Cost of Doing Business: Ontario’s Court of Appeal rules that O. Reg. 283/95 does not allow for the recovery of transactional expenses in priority disputes unless there has been a deflection

In Echelon General Insurance Company v. Unifund Insurance, 2025 ONCA 324, Ontario’s Court of Appeal recently upheld the decision of Arbitrator Ken Bialkowski who had disallowed Echelon’s claim to be reimbursed for amounts it had spent to adjust and defend the underlying accident benefits claim prior to Unifund being found to be the priority insurer pursuant to s. 268(2) of the Insurance Act.

This decision provides much needed clarity on the question of when a first insurer can claim recovery for its handling and defence expenses against the ultimate priority insurer in the context of a private arbitration conducted pursuant to O. Reg. 283/95.

Writing for a unanimous panel of the Court consisting of Justices Nordheimer and Gomery, Justice Dawe acknowledged that arbitral and lower court jurisprudence was somewhat divided on the question of whether arbitrators can routinely invoke the equitable principle of “unjust enrichment” in awarding reimbursement to the first insurer for amounts paid out in connection with adjusting and defending the claim.

Dawe J.A. characterized the question before the Court as follows:

…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…” 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.

In a nutshell, the Court of Appeal agreed with the Arbitrator that the drafters of the legislation intended that recovery of transactional expenses is available under the Regulation only in cases where an insurer has deflected a claim, as specifically allowed by s. 2.1(7) of O. Reg. 283/95 which states that:

(7) An insurer that fails to comply with this section[1] 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.

The Arbitrator’s interpretation was consistent with the language and purpose of the Regulation, which included a desire for “clarity and certainty of application” as well as cost containment.  This is within the “what goes around comes around” context of a scheme which the Court of Appeal had previously described as applying “to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other.”[2]

The Court did not address the question of whether reimbursement orders could be made on the basis of unjust enrichment in “special circumstances” as it was agreed that there were no such circumstances involved in the case before it.  However, from the reasoning offered in this decision, it would appear that such circumstances would have to be quite extraordinary in order to justify an exercise of equitable discretion under the Arbitration Act which would run counter to the legislative intent that insurers are to bear their own pre-arbitration expenses in a priority dispute.

Likewise, the Court acknowledged concerns raised by the Motor Vehicle Accident Claims Fund about its special status as the payer of last resort imposed by statute, as opposed to being an actual “insurer” and any potential special treatment it deserves in addressing this question, which had been granted intervenor status on the appeal.  Because the Fund was not a party, and the hypothetical issues raised on the Fund’s behalf were not before the Court, no decision with respect to the application of this ruling to the Fund was made.  The Court did note that it would be open to the Fund to seek a regulatory amendment to clarify whether any special considerations would apply in the case of costs incurred by the Fund.

Not specifically addressed in this decision is the question of whether insurer examinations conducted under s. 44 of the Statutory Accident Benefits Schedule are recoverable in a priority dispute.  Given that these expenses tend to be claimed on the grounds that they were incurred for the benefit of the ultimate priority insurer (and therefore non-payment by that insurer would result in it being unjustly enriched), it would seem to follow that they are not.  Likewise, the decision does not address costs incurred prior to arbitration in order to investigate and pursue a priority claim.  In practical terms these amounts are usually not significant or easy to tease out from the overall costs of handling the claim, and therefore it is anticipated that private arbitrators will be loathe to award repayment in light of the principles underlying Regulation 283. While there may also be lingering issues regarding the circumstances in which equitable discretion can be invoked under the Arbitration Act with respect to the issue of pre-arbitration expenses (if any), this decision provides important guidance for insurers in resolving priority disputes and also emphasizes the importance of moving these disputes quickly to a conclusion.

Jennifer Griffiths is the author of this blog and a member of the Priority and Loss Transfer Disputes practice group and the Appellate Advocacy practice group. If you would have a question about this blog or a similar file, please contact Jennifer at 416-777-5245.

[1] which requires the first insurer who received a completed application for benefits to handle the claim pending resolution of any priority dispute

[2] Kingsway General Insurance Co. v. West Wawanosh Insurance Co. (2002), 58 O.R. (3d) 251 (C.A.)