In the recent decision of Echelon General Insurance Company v. Unifund Assurance 2025 ONCA 324, the Ontario Court of Appeal allowed Unifund’s appeal settling the issue over whether arbitrators deciding priority disputes under Regulation 283 may routinely order one insurer to reimburse another insurer for its pre-arbitration expenses, outside of situations where s. 2.1(7) of Regulation 283 applies. The Court held that Regulation 283 reflects a deliberate regulatory policy choice to have insurers ordinarily bear their own pre-arbitration expenses, unless there has been improper deflection of a SABs claim, even if this creates some potential for unfairness in particular cases.

FACTS:

This appeal arises from a question about the proper interpretation of the regulation that governs disputes between automobile insurers over which insurer must pay Statutory Accident Benefits (“SABs”) to a motor vehicle accident victim. Section 268 of the Insurance Act creates a priority scheme for determining which insurer must pay SABs to an automobile accident victim. The Motor Vehicle Accident Claims Fund (“the Fund”) ranks last in priority. The Fund is administered by the Minister of Public and Business Service Delivery and Procurement (“the Minister”), who intervenes in this appeal.  Priority disputes between different insurers are governed by O. Reg. 283/95, titled “Disputes Between Insurers” (“Regulation 283”). When an insurer who receives an application for SABs fails to comply with its obligations to pay the claimant while any priority dispute is being resolved, this is commonly referred to as “deflection.” The 2010 amendments to Regulation 283 authorize arbitrators to impose sanctions on insurers who improperly deflect claims. Neither the Insurance Act nor Regulation 283 contain any other provision that expressly authorizes arbitrators to order that one insurer pay another insurer’s expenses in situations where s. 2.1(7) does not apply. However, Regulation 283 makes priority dispute arbitrations subject to the Arbitration Act, 1991, which authorizes arbitrators  to resolve disputes “in accordance with law, including equity”.

In this case, an arbitrator declined to order that the appellant, Unifund Assurance (“Unifund”) pay the expenses incurred by the respondent, Echelon General Insurance Company (“Echelon”). These expenses, which totalled more than $100,000, included independent adjusting fees, mediation fees, legal costs, and disbursements. The Superior Court of Justice allowed Echelon’s appeal from this decision and held that Echelon was entitled to be reimbursed by Unifund. The judge found that the doctrine of unjust enrichment entitled Echelon to be reimbursed by Unifund “for those reasonable expenses that were incurred for the ultimate benefit of Unifund.”  Unifund appealed.

ISSUES:

1. Does Regulation 283 limit the application of the doctrine of unjust enrichment? and
2. Despite the interpretation of Regulation 283, should the Fund nonetheless be entitled to recoup its pre-arbitration expenses?

HOLDING:

Appeal allowed.

REASONING:

1. Yes

The Court found that the regulatory language supports the arbitrator’s interpretation and weighs against the competing interpretation that was adopted by the appeal judge. That is, the Lieutenant Governor in Council intentionally chose to limit expense reimbursements to the deflection cases to which s. 2.1(7) applies.

First, the Court noted that Regulation 283 does not say that all disputes between insurers arising out of priority disagreements are arbitrable. Rather, s.1 states that all such disputes “shall be settled in accordance with [the] Regulation.” The Court noted that the question they must answer is whether ordering one insurer to reimburse another for its expenses, in situations where s. 2.1(7) does not apply, is “in accordance with [the] Regulation.” This question, according to the Court, can only be answered by considering and interpreting the specific regulatory provisions, after situating them in the broader legislative and regulatory context.

Second, the Court noted that the drafters of Regulation 283 did not entirely ignore the issue of expense reimbursements as the 2010 amendments to the regulation expressly required insurers who improperly deflect SABs claims to reimburse other insurer for their resulting “legal fees, adjuster’s fees, administrative costs and disbursements.” Thus, if the drafters had meant to allow arbitrators to order reimbursement of these same expenses even in cases where there was no deflection, they could easily have said so. Third, Sharpe J.A.’s observations in Kingsway support the conclusion that the drafters were acting deliberately.

On the arbitrator and appeal judge’s disagreement about whether it could be inferred that the drafters of Regulation 283 had intentionally limited expense reimbursement orders to deflection cases in furtherance of the policy goal of reducing the cost of priority dispute arbitrations, the Court accepted that both of the competing policy objectives identified by the arbitrator and the appeal judge are ones that plausibly could have been in the minds of the persons who drafted Regulation 238. However, the Court reiterated that its task when interpreting Regulation 283 is to try to identify why the Lieutenant Governor in Council drafted the regulation as it did, not to decide what would be the best policy or reassess the wisdom or fairness of the Lieutenant Governor in Council’s policy choices. In the Court’s view, the available indicators in this case all support the arbitrator’s conclusion that the Lieutenant Governor in Council intentionally chose to limit expense reimbursements to the deflection cases to which s. 2.1(7) applies. The Court also found plausible the arbitrator’s conclusion that the Lieutenant Governor in Council believed that limiting expense reimbursement would reduce the length and cost of priority arbitrations.

With respect to the arbitrator and the appeal judge’s disagreement about the fairness of making insurers routinely bear their own pre-arbitration expenses, the Court noted that the issue is not, as the appeal judge put it, whether “the stated policy reason that ‘it should all balance out’ is a valid juristic reason for not allowing a claim for reimbursement of expenses in a priority dispute.” Rather, it is the regulation itself that would provide the juristic reason for any resulting enrichment and deprivation, not the underlying policy objective. The Court also did not accept the appeal judge’s argument that if the drafters had been trying to reduce costs, and if they had believed that any unfairness would even out in the long run, they would have done away with the priority scheme altogether. The Court pointed out that the priority scheme was established by s. 268 of the Insurance Act, not the Regulation and the persons who drafted Regulation 283 were obliged to work within the confines of the legislative policy choice.

Considering all the factors, the Court concluded that, the balance tips in favour of interpreting Regulation 283 as reflecting a deliberate regulatory policy choice to have insurers ordinarily bear their own pre-arbitration expenses, unless there has been improper deflection of a SABs claim, even if this creates some potential for unfairness in particular cases. The Court noted that the Lieutenant Governor in Council’s decision to single out deflection cases for special treatment strongly implies that they did not expect arbitrators to routinely make reimbursement orders in other cases. Thus, the appeal judge erred in his interpretation of Regulation 283. The Court set aside the appeal judge’s expense reimbursement order and restored the decision of the arbitrator finding that Unifund is not obliged to reimburse Echelon for its pre-arbitration expenses in this case. The Court also set aside the lower courts costs order and granted Unifund its costs of both appeals in the amount of $15,000, all inclusive, payable by Echelon.

The Court declined to answer whether Regulation 283 should be interpreted as implicitly barring arbitrators from invoking equitable principles even in exceptional cases, noting that question is best left to be decided in an appeal where the issues actually arises.

2. The Court did not decide this issue.

The Court held that it would not be appropriate for it to decide the issue in the context of an appeal where the Fund is not a party, and where the issues does not squarely arise. However, the Court noted that even though it has previously found the Fund to be an “insurer” within the meaning of Regulation 283, it has also held that one of the purposes of the regulation is to protect public resources by “ensur[ing] that the Fund is the funder of last resort. Particularly, the Court stated that nothing in the case’s reasons should be taken as deciding, one way or the other, whether Regulation 283 can or should be interpreted as permitting the Fund to recoup its pre-arbitration expenses, either through arbitration or in the courts, in cases where some other insurer is ultimately found to have priority over a SABs claim.