The recent Ontario Court of Appeal decision of Gore Mutual insurance Company v. Carlin confirms that contracts of indemnity are meant to indemnify an actual loss and not provide a windfall.
The facts, surprisingly, are straight forward. The respondents carried on a dental practice. A fire destroyed the building in which the practice was run. The fire also destroyed the contents. Gore had issued a policy for the building and its contents. Prior to determining the total loss, Gore made a series of advance payments to the Respondents. A dispute over the value of the total loss arose. Gore and the respondents participated in an appraisal as provided for in section. 128 of the Insurance Act, R.S.O. 1990, c. I.8 (“the Act)”. The amount found to be payable by the Gore 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 Gore was $926,677.03. However, by this time Gore had already paid out $1,030,187.04. It sued to recover the overpayment of $103,510.01.
A summary judgment motion was brought to resolve the issue. The motion judge found that the advance payment was deliberate and not the product of mistake. He noted as well that both the policy and the Actwere silent regarding what happens when an overpayment has been made. He contrasted this to the Schedulethat had specific repayment provisions. He found no repayment was owed and unjust enrichment was not available. Gore appealed.
Gore was successful on the appeal. The Court of Appeal found the motion judge had ignored the fundamental principle that a contract of insurance is a contract of indemnity; it is not a vehicle for turning misadventure into profit.
The Court of Appeal found it was insufficient to engage in an analysis of the policy that is limited to a search for a specific provision that dealt with an overpayment. 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. 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 policy provided only for indemnification for a loss suffered. The reference to Schedulewas inapt, as itcontemplates payments made by insurers to both insureds and third parties. It makes sense that the Schedulewould 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.
Additionally, the motion judge erred in law in the unjust enrichment analysis. 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. The Court found where money is transferred from a plaintiff to a defendant, there is an obvious enrichment. In this case, there was no issue that the insured received a benefit and that the appellant suffered a corresponding deprivation.
This decision represents helpful clarification from the Court of Appeal. While insurers are bound to act in good faith to their insureds, they are only obligated to indemnify them for the actual loss suffered. Where good faith advance payments lead to an overpayment not contemplated by the contract, an insurer is entitled to repayment for this excess amount.