Court of Appeal for Ontario

Date: July 11, 2018 Docket: C64871

Feldman, Hourigan and Brown JJ.A.

Between

Gore Mutual Insurance Company Plaintiff (Appellant)

and

Dr. George Carlin, Dr. George Carlin Dentistry Professional Corporation and Windent Inc. Defendants (Respondents)

Counsel:

• Debbie Orth, for the appellant
• James L. MacGillivray, for the respondents

Heard: July 4, 2018

On appeal from the order of Justice Stanley J. Kershman of the Superior Court of Justice, dated December 22, 2017.

Hourigan J.A.:

Introduction

[1] This appeal raises the issue of whether an insured is permitted to retain the total amount paid by its insurer when it is subsequently determined that the amount paid was in excess of the loss suffered.

[2] The motion judge granted summary judgment to the insureds in this case, holding that they were free to keep the total amount paid by the insurer, even though it exceeded their loss by over $100,000.

[3] These reasons explain how the motion judge erred in reaching this conclusion and why I am allowing the insurer's appeal.

Background Facts

[4] The respondent Dr. George Carlin carried on the practice of dentistry in a building owned by the respondent Windent Inc., located in Winchester, Ontario. The respondent Dr. George Carlin Dentistry Professional Corporation managed the practice.

[5] On September 27, 2012, a fire destroyed the building and its contents. At the time of the loss, the appellant had issued an insurance policy for the building and its contents with the named insured being Dr. George Carlin Dentistry Professional Corporation. This policy also included coverage for business interruption. In addition to the policy issued by the appellant, there was coverage with Aviva Insurance Company of Canada ("Aviva"). That policy did not insure the building. The appellant and Aviva reached an agreement on the proration of the losses under their respective insurance policies.

[6] The appellant made a series of payments to the respondents prior to the determination of the total loss. These included a first payment of $50,000 made on October 3, 2012, as an advance payment under the Equipment Coverage section of the appellant's policy, and a further advance payment of $18,077.04 pursuant to that section of the policy on December 17, 2012. Other payments were also made under the policy to the respondents to cover lost profits.

[7] On November 20, 2012, the appellant received a report that estimated the building loss at $894,160.21. In December 2012, the appellant obtained an estimate for the cost of replacing the building in the amount of $1,176,002.68.

[8] On March 11, 2013, the respondents' representative advised a representative of the appellant that the respondents were invoking an appraisal process to determine the value of the loss under the policies issued by the appellant and Aviva.

[9] On April 3, 2013, the appellant's representative advised the respondents and their representative, as well as Dr. Carlin's wife Sandra Carlin, via email that he had authorized an advance for the loss payable for the building in the amount of $750,000. The appellant's representative followed up with a further email on April 22, 2013, reiterating that he had possession of the advance and that he was awaiting receipt of a Proof of Loss in order to release it.

[10] The respondents' representative replied to the appellant on June 14, 2013, advising that the interim $750,000 payment should be cancelled, as the respondents wished to wait until the building reconstruction costs and actual cost value ("ACV") had been determined.

[11] Sandra Carlin sent a further email to the appellant's representative on July 26, 2013, explaining why the respondents found the $750,000 offer to be inadequate. The appellant's representative replied that day stating, in part, that "the…advance of $750K is just that, a substantial advance toward your loss so you can get restoration under way…this $750K advance in no way ties either of us to follow either side's estimate."

[12] The appellant's representative followed up with an email to the respondents' representative and Sandra Carlin on September 13, 2013. That email provided in part as follows:

As previously advised accepting the $750K offer does not tie you to anything or hold you to repairs of any certain nature. Legally under your insured contract, the insured is owe[d] the Actual Cash Value for an item as settlement assuming replacement has not been enacted.

Accepting the advance you are well within your right to: rebuild as per pre-loss specifications, rebuild as per new upgraded specifications (upgrade at your own expense). Should you choose to re-build and your total costs are lower than the ACV issued, the additional funds are still yours to utilise as you see fit.

[13] On September 25, 2013, two Proof of Loss forms were submitted to the appellant on behalf of the respondents. The appellant rejected them on October 2, 2013, but the respondents were advised that the $750,000 payment would nonetheless be made. Those funds were advanced on October 11, 2013.

[14] The appellant and the respondents participated in an appraisal on May 14, 2014, as provided for in s. 128 of the Insurance Act, R.S.O. 1990, c. I.8 (the "Act"). The amount found to be payable by the appellant under the appraisal was $713,767.33. To that amount was added an agreed sum for business interruption loss, being $205,444, and $7,465.70 for professional fees. The total amount payable by the appellant was $926,677.03. However, by this time the appellant had already paid out $1,030,187.04. It sued to recover the overpayment of $103,510.01.

Decision of the Motion Judge

[15] The parties agreed that the issue of the entitlement to the excess funds should be determined by summary judgment.

[16] The motion judge began his analysis by finding that the appellant is a sophisticated insurance party. He then found that even though the $750,000 payment was referred to as an advance, it was not in fact an advance because it was paid on the basis that it could be used as the respondents saw fit.

[17] The motion judge next found that the payment was deliberate and not the product of mistake. He noted as well that both the policy and the Act were silent regarding what happens when an overpayment has been made.

[18] The appellant's claim of unjust enrichment was rejected on the grounds that the respondents obtained no benefit when they received the $750,000 payment, and that there was a juristic reason for sending the money, as set out in the September 13, 2013 email, which, according to the motion judge, indicated that the respondents could use the money as they wished.

[19] The motion judge granted summary judgment to the respondents, finding that they were not obligated to repay the overpayment.

Issues

[20] The grounds of appeal in this case boil down to two issues:

(i) Did the motion judge err in holding that the appellant is not entitled to recover the overpayment? and;

(ii) Did the motion judge err in finding that unjust enrichment was not an available remedy?

Analysis

(i) Entitlement to Recover the Overpayment

[21] I accept the appellant's submission that a contract of insurance is a contract of indemnity; it is not a vehicle for turning misadventure into profit. The motion judge's analysis ignores that fundamental principle. His analysis is based on a palpable and overriding error of fact regarding the September 13, 2013 email and extricable legal errors.

[22] Before turning to the motion judge's interpretation of the September 13, 2013 email, I note that in considering that communication, he failed to take into account that the appellant had a duty of good faith to facilitate the respondents' claim. It is clear from the correspondence among the parties that the appellant's representative was endeavouring in good faith to assist the respondents in rebuilding the dental practice. Given that the respondents only had one year of business interruption coverage, timing was important. The first offer of the $750,000 payment was made in April 2013; the respondents did not finally accept the offer until September 25, 2013, just over a year from the date of the fire.

[23] The plain wording of the email does not support the motion judge's conclusion that the appellant was permitting the respondents to keep the full amount regardless of the quantum of their loss. The representative stated explicitly that the insureds were entitled to recover the actual cash value ("ACV") of the loss. He further stated that in the event that the insureds chose to rebuild and the costs of rebuilding were less than the actual cash value, they were entitled to use the excess funds as they saw fit.

[24] There was no suggestion in the email or in any of the earlier correspondence that the respondents were bound by the $750,000 payment. It was an advance only, pending the determination of the actual cash value through the appraisal process. Clearly, the respondents did not feel that they were bound by the payment as they continued to dispute the appellant's figures for actual cash value and replacement cost value in the appraisal process.

[25] The motion judge erred in equating the actual cash value as referred to in the email with the $750,000 advance. This led him to erroneously conclude that the appellant was communicating to the insureds that they could keep the $750,000 regardless of the quantification of the actual cash value that was to be determined as part of the appraisal process. This was a palpable and overriding error of fact.

[26] This factual error was compounded by extricable legal errors. The first legal error arises from the motion judge's interpretation of the policy. He found that there was nothing in the wording of the policy that covers a situation where there has been an overpayment. Therefore, he concluded that the policy did not obligate the respondents to repay the overpayment.

[27] An analysis of the policy that is limited to a search for a specific provision that dealt with an overpayment is not sufficient. The motion judge was obliged to determine what the parties bargained for in entering into their contract of insurance. Had he done so, it would have been clear that the respondents' retention of the overpayment was antithetical to the bargain the parties struck.

[28] The policy was designed to indemnify the insureds for loss suffered as defined in the policy. It contains a provision that states that indemnification against direct loss is limited to the least of: the actual cash value of the property, the interest of the insured in the property, and the amount of insurance specified in the declarations. A further provision states that the insurer "is not liable beyond the actual cash value of the property".[1]

[29] 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: Brisette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87, at pp. 92-93. In the present case, the motion judge's decision goes beyond an unanticipated recovery to grant a windfall that is wholly unconnected to the recovery of any loss. The policy provides only for indemnification for a loss suffered.

[30] The motion judge also erred in law in his analysis of the Act. Similar to his analysis of the policy, he limited his inquiry to a search for a specific provision in the Act addressing a situation where an overpayment is made. With respect, his analysis failed to consider the purpose and scheme of the Act.

[31] The Act defines insurance as "the undertaking by one person to indemnify another person against loss or liability for loss…" Where the insurer and insured cannot agree on the quantum of the loss, they may have the issue determined by an appraisal, a mechanism provided for by the Act. In this case, the parties used the appraisal process to determine the respondents' loss, except the agreed upon sums for professional losses and business interruption. I note that when the appraisal was issued, it was expressly subject to "deduction for any indemnity payments made by the insurers to and on behalf of the insureds to date."

[32] Thus the motion judge's ruling is in conflict with the most basic elements of the Act by permitting recovery for amounts beyond the loss suffered by the insured. That is inconsistent with the definition of insurance as provided for in the Act and contrary to the purpose of conducting an appraisal.

[33] The motion judge commented in his analysis that it would have been a simple matter for the legislature to deal with the issue of overpayment in the Act. To illustrate this, he noted that there is a specific provision dealing with overpayment in the Statutory Accident Benefits Schedule, O. Reg. 34/10, under the Act. Section 52 of the Schedule provides for repayment to the insurer of, among others things, amounts paid to a third party in error or as a result of fraud, and amounts paid as income replacement to a person who was disqualified from receiving such a benefit under the Schedule. However, the reference to the Schedule in this case was inapt, as the Schedule contemplates payments made by insurers to both insureds and third parties. It makes sense that the Schedule would specifically address repayment to the insurer of erroneous payments given that they could potentially be made to third parties who have no contractual relationship with the insured. In this case, as stated above, the contract was limited to indemnification of the insured's loss.

[34] Similarly, the motion judge's reliance on Ryan v. Richards (1991), 30 A.C.W.S. (3d) 969 (Ont. Gen. Div.), aff'd 54 A.C.W.S. (3d) 501 (Ont. C.A.), was also inapt. There, in the context of a motor vehicle accident, the tortfeasor's insurer made an advance payment under the Act to the third party injured plaintiff, with whom there was no direct contractual relationship.

[35] In summary, I am of the view that the motion judge made a palpable and overriding error of fact, which was compounded by extricable legal errors, in concluding that the respondents were entitled to retain the overpayment. The payments were not made in a vacuum. They were advanced to the respondents pursuant to a contract of insurance, which is regulated by the Act. They were not intended to be, nor can they properly be interpreted to be a gratuitous payment over and above the indemnity contracted for by the parties. Instead, the policy must be interpreted as a contract of indemnity only.

(ii) Unjust Enrichment

[36] The motion judge found that there was no unjust enrichment. He determined that respondents received no benefit when they received the $750,000 payment. Further, he found that the juristic reason for the payment was the September 13, 2013 email, which he said permitted the respondents to do whatever they wanted with the money.

[37] The motion judge erred in law in his unjust enrichment analysis. The test for unjust enrichment is well established in the jurisprudence. To successfully make an unjust enrichment claim, a plaintiff must prove three things: (1) the defendant must have received an enrichment, (2) the plaintiff must have suffered a corresponding deprivation, and (3) there was no juristic reason for the benefit and loss: Kerr v. Baranow, 2011 SCC 10, [2011] S.C.R. 269, at paras. 31, 36 and 40.

[38] Where money is transferred from a plaintiff to a defendant, there is an obvious enrichment: Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 36. In this case, there can be no issue that the insured received a benefit and that the appellant suffered a corresponding deprivation.

[39] For the reasons given above, the motion judge erred in his interpretation of the September 13, 2013 email. That email did not communicate that the respondents could do whatever they liked with the $750,000 payment regardless of the quantification of the actual cash value that was to be determined as part of the appraisal process. Therefore, the email is not a juristic reason for the benefit and corresponding loss.

[40] In my view, the motion judge erred in finding that the remedy of unjust enrichment was not available to the appellant.

Disposition

[41] The appeal is allowed. The order of the motion judge is set aside. An order will go granting summary judgment against Dr. George Carlin Dentistry Professional Corporation in favour of the appellant in the amount of $103,510.01, plus interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43.

[42] The appellant is also entitled to its costs below. If there is an issue regarding quantification of those costs, the parties shall make submissions to the motion judge.

[43] With respect to the costs of the appeal, in keeping with the parties' agreement, the respondents shall pay the appellant its costs of the appeal in the all-inclusive sum of $7,500.

Released: July 11, 2018

"C.W. Hourigan J.A."

"I Agree. K. Feldman J.A."

"I Agree. David Brown J.A."

Footnote

[1] In this case, the insureds purchased additional coverage to obtain replacement cost as opposed to actual cash value, which resulted in a further provision that "the insurer agrees to amend the basis of settlement from actual cash value to replacement cost…"