In Economical v Echelon, a recent private arbitration decision by Arbitrator Phillippa Samworth, Echelon challenged the reasonableness of payments in a priority claim from Economical. Echelon did not dispute the quantum or eligibility of the benefits, but rather the proof of incurred or economic loss of the attendant care provider.
The claimant was struck by a vehicle insured by Economical. She applied to Economical, but she was dependent on her mother, who was insured by Echelon. Her mother requested a leave of absence to care for her daughter in January 2013, according to a Record of Employment. Economical accepted the ROE as proof of economic loss and paid attendant care benefits. Aside from the ROE and a letter from their lawyer, no proof of economic loss was ever received, but attendant care was paid until October 2014.
Mileage was initially denied because of the FSCO bulletin which specifically did not require the insurer to pay mileage expenses. However, the treatment plans including the mileage were approved before the effective date of the FSCO bulletin and so mileage was paid out.
Unlike loss transfer disputes, there is no guidance from the Superintendent of Insurance regarding the reasonableness of payment.
Arbitrator Samworth found that the principles of reasonableness of payments utilized in loss transfer disputes are applicable to reimbursement in a priority dispute. She cited her own test in Commercial Union Insurance Company of Canada v The Boreal Property & Casualty Company wherein challenges to reasonableness of payments made are limited to confirming that the primary insurer did not act in bad faith, make payments not covered under the SABs, or grossly mishandle the file.
Like that of loss transfer disputes, the standard imposed on insurers seeking reimbursement is not perfection and the onus of proof rests on the second party insurer to establish the payment made was not reasonable. Arbitrator Samworth found that the system of insurance coverage is premised on good faith and so it was reasonable of Economical to rely on the ROE and the claimant’s lawyer’s letter. Although more information should have been sought, it was not grossly unreasonable for Economical to have paid the benefits it sought to recover from Echelon, especially in the context of a catastrophic injury claim.
Arbitrator Samworth set out a three stage process for reimbursement in priority disputes:
- Insurer who handled claim must prove that benefits were paid for which reimbursement is sought;
- The Party resisting reimbursement must prove that the adjusting of the file meets the test of bad faith or gross mishandling in the processing of the claim; and
- The Party resisting reimbursement must prove that, had the file been handled properly, the payments would then not have been made.
At first glance, the third step appears to be a departure from loss transfer disputes, but it is an unspoken addition in loss transfer disputes. Articulating this requirement should shut down challenges that would be essentially meaningless where the end result was reasonable.