



COURT OF APPEAL FOR ONTARIO

CITATION: Gore Mutual Insurance Company v. Carlin, 2018 ONCA
    628

DATE: 20180711

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)

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.:

[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 insurers 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 appellants 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 appellants representative
    advised the respondents and their representative, as well as Dr. Carlins 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 appellants 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 appellants representative
    on July 26, 2013, explaining why the respondents found the $750,000 offer to be
    inadequate. The appellants representative replied that day stating, in part,
    that theadvance of $750K is just that, a substantial advance toward your loss
    so you can get restoration under waythis $750K advance in no way ties either
    of us to follow either sides estimate.

[12]

The
    appellants 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
    appellants 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 appellants submission that a contract of insurance is a contract of
    indemnity; it is not a vehicle for turning misadventure into profit. The motion
    judges 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 judges 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 appellants 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 judges 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 appellants 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 judges 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 judges 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 judges 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
    insureds loss.

[34]

Similarly,
    the motion judges reliance on
Ryan v. Richards

(1991), 30
    A.C.W.S. (3d) 969 (Ont. Gen. Div.), affd 54 A.C.W.S. (3d) 501 (Ont. C.A.), was
    also inapt. There, in the context of a motor vehicle accident, the tortfeasors
    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: K.F. July 11, 2018

C.W.
    Hourigan J.A.

I
    Agree. K. Feldman J.A.

I
    Agree. David Brown J.A.





[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


