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Articles and Publications

July 2017

The Effect of "After The Event" Insurance on the Litigation Process

Howard Borlack
Howard Borlack,
Partner

Ben Carino
Ben Carino,
Associate Lawyer

By Howard Borlack and Ben Carino

Imagine trading peace of mind for a chance to give someone a piece of your mind. Welcome to “After The Event" (ATE) insurance policies – the instigators of the insurance policy world. In general, Legal Expense Insurance (LEI) products exist to provide coverage for various legal costs and disbursements during the litigation process. These products include “Before The Event" insurance, which provides coverage for a future incident, and “After The Event" insurance, which is obtained specifically to litigate an incident after it has already occurred.

A typical ATE policy provides $100,000 in coverage for automotive and non-automotive personal injury claims commenced by a plaintiff. The policy itself covers an opponent's adverse costs and the plaintiff's own disbursements in the event of a loss. There is no upfront fee, and premiums are only due if a matter is successfully concluded. Notably, the plaintiff must still pay for his or her own lawyer's fees.

Reaction in the Marketplace

The legal expense insurance industry has grown unevenly in the Canadian marketplace. Although it is relatively unknown in Ontario, litigation insurance is well established in Quebec due to marketing by Le Barreau du Qu├ębec, which spends $125,000/year on public information campaigns that have led to coverage for 250,000 Quebec families.1 Some unionized workers, notably from Canadian Auto Workers and Power Workers Union, also benefit from coverage built into their union contracts.2

Importantly, legal expense insurance can only be offered by licenced insurers pursuant to the Ontario Insurance Act.3 DAS Canada became the first company to offer general legal expense insurance in 2010 and ATE insurance in 2012.4 Other legal cost protection providers have had to overcome various regulatory obstacles prior to market entry. For example, an Interim Cease and Desist order was issued by the Financial Services Commission of Ontario against Bridgepoint Insurance Company (BICO) in July 2016 for offering an insurance product without a licence.5 BICO restructured its affairs by partnering with Omega General Insurance Company in 2017 to offer its products through Belyer Insurance Limited/Belyer Insurance Brokers Limited. The legal expense insurance market is now filled with competitors such as DAS, BICO, AON, Nudorra Capital, and JusticeRisk Solutions to fill projected demand.

Reaction by the Courts

Although ATE insurance is a relatively new offering in Ontario, it has been favourably received in the context of security for cost motions. On such motions, the court has a broad discretion to grant security for costs and will carefully scrutinize the quality, sufficiency, and legitimacy of a party's assets. In Alary v. Brown, the court ruled that ATE insurance was not equivalent to a payment into court, but that it was a factor that mitigated against ordering security for costs.6 In Brent Grotz v. 1392275 Ontario, the court ruled that the criteria for security for costs had been satisfied by the terms of an ATE insurance policy and by an undertaking by the plaintiff's lawyer.7

Recent case law in Ontario and British Columbia has also held that plaintiffs may not claim ATE insurance premiums as disbursements. In Markovic v. Richards, the court ruled that ATE premiums were not compensable as disbursements because such insurance was entirely discretionary, did nothing to advance the litigation, and had the potential to act as a disincentive to thoughtful, well-reasoned resolution of claims. This ruling has since been followed in Ontario8 and British Columbia.9

Emerging Issues

The effect of ATE insurance on the litigation process will almost certainly grow as the product gains traction in the Canadian marketplace. It is likely that the volume of actions commenced by plaintiffs will increase with the availability of funding, especially with the increase in class actions. Although ATE insurance is designed to improve access to justice in principle, it may also increase the number of questionable lawsuits that may otherwise have been settled out of court or abandoned entirely.

The presence of ATE insurance may also have a tangible impact on settlement negotiations during litigation. The prospect of adverse costs, which often encourages settlement before trial, may transform from an incentive to settle to a source of leverage for plaintiffs, who may feel empowered to proceed to trial and seek a greater recovery than is available through a settlement. Conversely, ATE insurance may lead to greater cost certainty for opposing counsel and his or her insurer, who can recover on any post-judgment cost order.

The standard of care expected from plaintiff-side counsel may also change. We have seen this phenomenon in the past with title insurance, which became widely used due to increased negligence claims against real estate lawyers. Real estate lawyers are now professionally obligated to advise their clients about the availability of title insurance in real estate transactions.10 Personal injury lawyers may face a similar professional obligation should ATE insurance become a widely used practice with little downside.

New products result in new work for lawyers in areas other than in litigation. Counsel are now being retained to provide independent legal advice on the acquisition of ATE insurance and/or whether a court will accept it as part of the litigation including for security for costs. This retainer in Canada did not exist as recently as a few years ago. Coverage counsel are being solicited to assist in the wording of the coverage by both insureds and insurers.

ATE insurance is an interesting product that has met initial regulatory hurdles, found some favour with the courts, and will continue to grow and evolve as demand increases and the marketplace matures. Insurers and defence counsel alike may seek to factor additional risk and litigation expense into their future projections should ATE insurance rise in prominence. Although it remains to be seen whether ATE insurance represents a net benefit to the fair and cost-effective administration of justice, early signs point to its continued adoption due to its low-risk profile and low initial cost outlay.


1 Kate Lunau, “How to pay for some justice" (Macleans Magazine, March 5, 2009).
2 Middle Income Access to Civil Justice Initiative Steering Committee, “Middle Income Access to Civil Justice Initiative" (University of Toronto Faculty of Law, 2008) at page 58.
3 Insurance Act, R.S.O. 1990, c. I.8, section 40(2).
4 DAS Legal Protection Insurance Company Limited.
5 Financial Services Commission of Ontario, Cease and Desist Order.
6 Alary v. Brown 2015 ONSC 3021.
7 Brent Grotz v. 1392275 Ontario Inc. o/a/ Hilton Garden Inn Toronto/Markham, et al, 2016 ONSC 2688.
8 Valentine v. Rodriguez-Elizalde 2016 ONSC 6395.
9 MacKenzie v. Rogalasky, 2014 BCCA 446.
10 Residential Real Estate Transactions Practice Guidelines, The Law Society of Upper Canada.


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