How it Works
Trial Insurance can be purchased at any point in the litigation after a claim has been filed. Coverage is typically around $100,000 but can range anywhere between $25,000 and $250,000 in personal injury cases, depending on the projected cost of litigation. Insurers and underwriters evaluate the file's potential to succeed before issuing a policy. Given the sums involved in such policies, coverage is generally limited to litigation that is considered highly likely to succeed and where the defendant has sufficient funds to pay costs.
The policyholder is always the plaintiff, and as with any type of insurance, the plaintiff pays a premium. While insurers set their own premium rates, generally, premiums are set according to risk. Therefore, the higher the risk involved in taking the case to trial, the higher the premium will be. Risk (and therefore, premiums) may increase as the parties get closer to trial. If a plaintiff accepts a pre-trial offer to settle, they lose their premium and walk away. Policy terms can vary from case to case, and from insurer to insurer. Some policies will cover adverse costs for motions, whereas others will strictly insure within the confines of litigation during trial.
If the plaintiff loses at trial, Trial Insurance covers costs payable to the winning side (including defence legal fees) and the plaintiff's own disbursements, up to the limit that has been selected. However, Trial Insurance does not cover the plaintiff lawyer's legal fees. If the plaintiff wins, the insurer receives a predetermined amount. In Ontario, insurers do not typically obtain a percentage of the winnings, but rather, collect the premium agreed upon at signing. In some cases, plaintiffs can choose to pay the premium up front.
History
While Trial Insurance only entered the Canadian market recently, it has been around for quite some time in the United Kingdom.
The Access to Justice Act was brought into effect in the United Kingdom in 1999. One of its purposes was to offer an alternative to the traditional funding of litigation. It introduced Trial Insurance, among other changes.1 Given that Trial Insurance has been around for 18 years, the market and underwriting for Trial Insurance is therefore more developed in the United Kingdom.
Trial Insurance entered the Canadian market through class-action litigation around 2009. |
Trial Insurance entered the Canadian market through class-action litigation around 2009. Firms sought out insurance for their clients to protect them from the significant financial risks of class-action litigation. Personal injury lawyers began to seek similar protection for their clients after witnessing how such insurance empowered representative plaintiffs in class actions to maximize the value of their claims—and thus, a market was born.2
While some insurance providers offer Trial Insurance across the country, Ontario and British Columbia have the most developed jurisprudence on issues surrounding its use.
The Good
Trial Insurance provides a clear benefit to plaintiffs, as they receive protection from the sting of having costs ordered against them if unsuccessful at trial. In general, plaintiffs that may have previously been inclined to accept a lower settlement in order to avoid trial and risk incurring a loss can now purchase the security to refuse inadequate settlements and proceed to trial with little risk of adverse costs. The availability of Trial Insurance can, therefore, increase access to justice to those with limited financial means.
Lawyers acting for plaintiffs often run the risk of being out of pocket for unpaid disbursements if an action fails and their clients are unable to pay. Therefore, lawyers acting on behalf of plaintiffs may also benefit if their clients purchase Trial Insurance, as they stand to receive protection for disbursements incurred. With protection for their disbursements, lawyers acting for plaintiffs may feel empowered to take on more clients, retain appropriate experts, and adopt tougher positions in negotiations.
Surprisingly, defence lawyers and their clients may also benefit from the security that Trial Insurance offers plaintiffs and their counsel. For instance, judges may no longer hesitate to award costs, particularly on a substantial indemnity basis, where a plaintiff is insured. If an order for costs is made, defence counsel and their clients can be more certain they will recover their costs, as they know an insurer will pick up the tab. Recovering payment for costs can be difficult, if not impossible, when the plaintiff does not have the means to pay.
The Bad
Triggers invalidating coverage may include: |
Generally, plaintiffs have less decision-making autonomy with Trial Insurance as they are required to adhere to the terms and conditions of the policy. Triggers invalidating coverage may include: failing to take plaintiff counsel's advice, failing to cooperate with counsel, or parting with counsel.3 Even more problematic, the stipulations of the policy may put a strain on the solicitor-client relationship, as plaintiff's counsel is responsible for updating the insurer regarding the status of litigation. Where a breach occurs, it is up to counsel to advise the insurer, who may then terminate the policy.
Regardless of whether the claim is successful, plaintiffs in Ontario and British Columbia will lose their premium as it is not recoverable as a disbursement.4 While increasing access to justice is the intended effect of Trial Insurance, plaintiffs pay out of pocket for premiums. As these premiums are set in accordance to risk, plaintiffs may be unable to afford trial insurance entirely. Where a claim succeeds, coverage is not guaranteed as payment is subject to the insurer's investigation.5
Where a claim is unsuccessful, lawyers acting for plaintiffs may not get paid for their time, as only disbursements and the opposing counsel's costs are covered by Trial Insurance. Where a claim is abandoned and coverage is consequently invalidated, lawyers acting for plaintiffs may be in the unfortunate position of having to pay out of pocket for disbursements in addition to not getting paid for their time.
Defence counsel and their clients face the greatest loss of all—their leverage. Plaintiffs without Trial Insurance may be more amenable to settling early and accepting a less-than-ideal settlement, simply in order to avoid incurring the costs associated with going to trial. Since plaintiffs with Trial Insurance have little to lose by proceeding to trial, defendants are no longer able to use the threat of trial to facilitate a settlement on their terms when plaintiffs have Trial Insurance. The long-term effects of this may lead to fewer settlements, costlier settlements, and/or deferred settlements. Regardless of the outcome, insurers should expect a slower turnover of cases.
The advent of Trial Insurance may also have a broader impact on the justice system in Ontario. Although insurers aim to only underwrite claims with a good chance of success, plaintiffs with Trial Insurance may overvalue the merits of their case and push to have their day in court—regardless of whether that day is necessary. As such, mediators and judges may encounter difficulty persuading the parties to settle and avoid going to trial.
A Strategy for Insurers
While insurers have no say in whether a plaintiff obtains Trial Insurance, they can control their knowledge and response to it.
For insurers defending claims, it is important to determine whether the plaintiff is insured early on, as this can affect the settlement process. The Examination for Discovery and Pre-Trial Conference are the best times to ask, in order to compel disclosure and frame settlement offers accordingly. If plaintiffs have Trial Insurance, then they must disclose that they have it.6 It is well-established, and has been re-affirmed in a recent legal decision in Ontario, that parties are also required to provide a copy of their policy if asked, as defendants have a broad legal right to inspection.7
It is in the plaintiff's best interests to disclose that they have Trial Insurance, as doing so would show the plaintiff has nothing to lose, and would then likely facilitate a favourable settlement. However, if plaintiffs refuse to answer whether they have Trial Insurance, defence counsel may bring a motion and/or application for an order compelling the plaintiffs to answer, and also to produce the policy itself.8
Conclusion
Trial Insurance is a novel concept in Ontario and in Canada. While its future and impact remain to be seen, it is certain that it will evolve as litigation parties gain more experience with it.
Those in the business of providing Trial Insurance should welcome the opportunity for new business. For insurers defending a claim, the only benefit is the certainty in knowing the plaintiff will be able to pay costs, which translates into a lower legal bill for the insurer. While this is an important advantage, it may not be worth the disadvantage of losing considerable leverage in the settlement process.
1 Box Legal, History of ATE Insurance
2 John Rossos, Legal Cost Protection Indemnities Versus ATE Insurance Advocate Daily.
3 Daigneault v Canjet, 2016 ONSC 78, 2016 CarswellOnt 105 [Daigneault].
4 Markovic v. Richards, 2015 ONSC 6983. 2015 CarswellOnt 17302, Foster v Durkin, 2016 ONSC 684, 2016 CarswellOnt 2096, Valentine v Rodriguez-Elizalde, 2016 ONSC 6395, 2016 CarswellOnt 16267, Wynia v Soviskov, 2017 BCSC 195, 2017 CarswellBC 334.
5 Daigneault, supra note 3.
6 Rules of Civil Procedure, RRO 1990, O Reg 194, s 30.02(3), Abu-Hmaid v Napar, 2016 ONSC 2894, 2016 CarswellOnt 6769 [Abu-Hmaid].
7 Fleming v Brown, 2017 ONSC 1430, 2017 CarswellOnt 2957.
8 Ibid, Abu-Hmaid, supra note 6.
