Ontario courts are in the process of considering the security and treatment of “after- the-event” legal cost indemnities and insurance. These products allow litigants to protect themselves from the risk of a cost order, giving them the security to proceed to trial. They can also be provided as a blanket policy for a law firm that needs protection for its disbursements. While still relatively new in Ontario, a view is emerging that there is a duty on lawyers to advise clients of the availability of this protection.
In the last few years, there has been some attention given to litigation cost insurance as an access to justice tool, with most products available as “before-the-event” (BTE) blanket coverage. There are now several companies in Ontario who are offering “after-the-event” (ATE) insurance or indemnities that people can purchase once a case has been instigated. Law firms can purchase it on behalf of clients and recover the cost from them later or maintain it as an expense for the benefit of the client, as a marketing exercise.
In other parts of the world, ATE insurance is a mature mainstream product, most notably in the United Kingdom. In Ontario, it has only entered the market in the last two or three years. In fact, there are two types of product — after-the-event insurance and adverse-cost indemnities.
Legal expense insurer DAS Canada offers such products and believes it has an upper hand in the embryonic market because it is a regulated insurance company, as opposed to other financial companies offering adverse-cost protection or settlement loans. “It’s a comfort knowing that insurance companies have huge requirements to have enough capital to cover all risks,” advises David Smagata, vice-president and chief legal officer of DAS Canada. His colleague, Nick Robson, manager, ATE & Special Initiatives, points out that the Trial Lawyers Association of British Columbia has placed some restrictions on the providers of settlement loans and cost-protection indemnities, and that the Ontario Trial Lawyers Association is drafting a code of conduct in relation to the use of indemnities.
With an ATE insurance policy, the policyholder is always the litigant. The firm can be delegated to accept certain risks to get standard coverage of $100,000, which can then be changed as litigation progresses. Smagata explains that it is not an intrusive product in terms of directing the litigation. “You don’t have to worry that someone’s going to come in and tell you how to run your case. It is not heavy-handed.”
Darryl Singer of Singer Barristers of Markham, Ont. has chosen to use the indemnity product from BridgePoint Indemnity Company. He has a blanket policy that covers every personal injury file he opens. “I pay $200 to cover up to $10,000 in disbursements with a rider that allows me to increase coverage to $50,000 without any review. If I decide that I am going to trial in a couple of weeks and the $50,000 is not enough, I can increase it to $100,000 or higher.” He knows of firms with a higher blanket policy. “My practice has a high volume of small files. Some firms have blanket coverage of $50,000 to $60,000.”
The indemnity covers the adverse costs, including defence legal fees and the plaintiff lawyers’ disbursements. It does not cover the plaintiff lawyer’s legal fees. John Rossos, chairman and CEO of BridgePoint, explains that because legal fees are on a contingency basis, in a downside case the court could say that you shouldn’t get a contingency fee because the lawyer has essentially borne no risk.
Rossos refers to the situation in the U.K. “In 1999, the Access to Justice Act mandated a situation that where ATE insurance, as it is known in the U.K., is purchased, a defendant had a duty to pay the premium. It then became ubiquitous in the legal community and evolved to be a standard of care. If counsel is not advising their clients that it is available, they are negligent.”
Rossos believes that a similar phenomenon is occurring here. “It is becoming the standard of care for personal injury lawyers launching a lawsuit to advise claimants of the products’ availability. If an unprotected client subsequently finds out about protection, the next question to the lawyer will be, ‘Why didn’t you advise me about it?’”
Rob Findlay, a Hamilton personal injury lawyer, agrees that there is a standard of care concern. “In our regulations, we are mandated to talk to clients about cost exposure. You’re certainly going to include this in that discussion. If it becomes routine enough in everyday practice and the client goes to trial and is hit with $100,000 costs, they may be looking for a pocket to recover from.”
Singer thinks the importance of the product weighs in at the negotiation stage. “After-the-event insurance has levelled the playing field for plaintiffs who might not otherwise be able to risk an adverse costs award by going to trial. Cases which would not settle at mediation because the plaintiff would be intimidated by potential costs consequences now stand their ground and get the case resolved. In addition, cases that would get dropped on the eve of trial by the plaintiff can now proceed to trial.”
Singer recalls that, in a typical scenario, before DAS and BridgePoint came on the scene, the insurer or the mediator or the judge would remind clients that they might win, but if they don’t, a two-week trial can cost $100,000. “The clients would fold like a pack of cards. This allows me as a lawyer to sit there, slap the certificate on the table, and say, ‘You don’t care if you lose and have to pay costs. Well, neither do we.’ Now the single biggest leverage they’ve got is off the table.
It has taken a major weapon away from the defence side.”
There are now several court decisions addressing the use of the products. Recently, a master ordered a plaintiff to purchase ATE insurance instead of paying into court, finding that the policy would provide sufficient security. There have also been several cases where a pre-existing policy has been raised as a defence to a security for costs motion, sometimes successfully and sometimes not.
The more vexed question is whether a successful plaintiff can claim the premium as a disbursement.Markovic v. Richards, rendered on Dec. 12, 2015 by the Ontario Superior Court of Justice, produced a finding that the premium paid for ATE is not payable by the insurer. James Greve of Camporese Sullivan Di Gregorio of Hamilton, Ont., who represented the insurer, says this is the first case in Canada to consider the issue, but he does not expect it to be the last. “My argument was that it is not consistent with the rules of civil procedure relating to the cost consequences of failing to accept offers to settle. It would insulate parties from that risk.”
Findlay, who represented the plaintiff, points out that the decision was not based on the representations of either party, which were minimal, and refers to the wrong product. He takes issue with the judge’s finding that the product was purchased as a voluntary option and did nothing to advance the litigation. He refers to the obligations imposed by the Automobile Insurance Rates Stability Act to try and affect resolution and encourage settlement. “How is it not consistent with that? If you have insurance, it will prolong efforts at resolution and make it more likely….”