Do you have to return the money if your insurance company overpays you for a loss?

By: Anita W.H. Wong

The unfortunate answer is yes. According to the Ontario Court of Appeal, in the recent case of Gore Mutual Insurance Company v. Dr. George Carlin et al., heard on July 4, 2018, you are required to return the overpayment.

Gore Mutual v. Carlin

In the Gore Mutual v. Carlin case, Dr. George Carlin was a dentist with a dental practice in Winchester, Ontario when a fire destroyed his office building and its contents on September 27, 2012. Dr. Carlin was covered by fire insurance and also had coverage for business interruption. The insurance company made a series of payments to Dr. Carlin and his dentistry corporation. The first payment was a $50,000.00 advance payment under the equipment coverage section made on October 3, 2012. This was followed by another advance payment of $18,077.04 made on December 17, 2012. Other payments for loss profits were also made. A further advance was authorized in April of 2013 in the amount of $750,000.00.

In the end, the parties agreed to an appraisal and the amount found to be payable under the appraisal process was $713,767.33 for the building, along with $205,444.00 for the business interruption loss, and $7,465.70 for professional fees. The total amount of the loss then was $926,677.03 but the insurer had already paid out $1,030,187.04 and so the insurance company sued to recover the overpayment of $103,510.01.

The matter proceeded to what is called a summary judgment motion. The motions court judge in the summary judgment motion held that Dr. Carlin and his company were not obligated to return the overpayment since the payment was deliberate and not a mistake, and the Insurance Act and the insurance policy were silent on this issue. However, the Court of Appeal disagreed and ruled in favor of the insurance company, finding the following:

• A contract of insurance is a contract of indemnity-which means reimbursement. It is not a vehicle for turning misadventure into profit;
• The insurance company has a duty of good faith to assist in the progress of the insurance claim;
• The insurance policy as a whole is designed to indemnify the insured for loss suffered as defined in the policy. It did contain a provision that states that indemnification against direct loss is limited to the actual cash value of the property, or the interest of the insured in the property, or the amount of insurance specified.
• The policy further stated that the insurer is not liable beyond the actual cash value of the property.
• Contracts of insurance are to be interpreted in a manner that results in neither a windfall to the insurer or an unanticipated recovery to the insured.
• The motion judge's ruling was in conflict with the most basic elements of the Insurance Act by permitting recovery for amounts beyond the loss suffered by the insured.
• In addition, the motion judge also erred in dealing with the law of unjust enrichment. "Here, there was no issue that the insured received a benefit and the insurance company suffered a corresponding deprivation." The remedy of unjust enrichment is available to the insurance company.

The Court of Appeal allowed the insurance company's appeal and granted an order of summary judgment against the insured. Thus, the law is clear: if you are overpaid by your insurance company for a loss, you have to return the overpayment unless your insurance policy states otherwise.

Have you received a denial from your insurance company? Contact Gluckstein Lawyers.