Canada: After The Event Insurance And Its Implications For Personal Injury Litigation

Last Updated: June 7 2017
Article by Kim J. Yee

An unsuccessful claimant in a civil action will normally be required to pay the costs of the defendant or defendants.  Such costs can be very significant.  After the event insurance (ATE), also known as legal costs insurance legal insurance, is now available in Canada.  It can be purchased by a claimant to offset such costs in both automobile and non-automobile personal injury litigation.

A typical policy costs under $1500.00 and covers $100,000.00 in costs including:

  • defence costs and disbursements awarded at trial,
  • the claimant's disbursements and any interlocutory costs orders,
  • coverage for costs awarded for failing to beat a settlement offer, and
  • the claimant's disbursements in the event that he or she abandons their claim.

The risk of adverse costs consequences has been an incentive for reasonable settlement and the avoidance of unnecessary litigation. For example, when a claim has little chance of success it is common for a defendant to make an offer to settle the claim in exchange for a waiver of costs.  Similarly, a defendant may choose to formalize a reasonable offer that is made.

In B.C. Rule 9-1 of the Supreme Court Civil Rules provides that when a reasonable offer is refused and a claimant goes on win a lesser amount at trial, the court can exercise its discretion and order that the claimant pay defence costs (and possibly even double costs) from the date of the offer to trial. In some cases, that will mean the plaintiff wins but comes away with little, nothing, or may even owe an amount to a defendant or group of defendants.

Since ATE policies cover all adverse costs, including orders made after a refusal to settle, these strategies may be less effective against insured claimants.  However, the terms of coverage in a typical ATE policy require that claimants accept offers their lawyers deem "reasonable".

In an interesting U.K. case, Callery v. Gray, 2002 UKHL 28, the House of Lords observed with ambivalence that ATE insurance promotes access to justice at the same time that it can encourage inefficiency and offset costs onto insurers and their policy holders.  It is notable that ATE polices are mandatory in that jurisdiction and that legislation allows the claimant to include the cost of the policy as a disbursement.  This is in contrast to the recent decision in Markovic v. Richards, 2015 ONSC 6983 where the court held that such costs are not recoverable as a disbursement in Ontario.

It is important when defending a claim to find out early if a claimant is insured against costs consequences, since this can affect the settlement process.  In B.C. Rule 7-1(3) of the Supreme Court Civil Rules obliges parties to litigation to disclose insurance policies under which an insurer may be liable to indemnify a party for satisfaction of a judgment. A similar rule in Ontario requires parties to produce for inspection any policy under which an insurer may be liable.

The application of the Ontario rule to an ATE policy was recently considered in Abu-Hmaid v. Napar, 2016 ONSC 2894, a motor vehicle accident case. At the examination for discovery of the claimant, defence counsel asked the claimant whether he had obtained ATE insurance and he refused to answer. An application was brought for an order compelling the claimant to answer the question.  The presiding master held that an ATE policy was an insurance policy covered by the rule.  The master held that the existence of such a policy is relevant to the resolution of personal injury disputes and needs to be disclosed. However, the master was not convinced that the specific terms of the policy were compellable under the circumstances.

Although B.C.'s rule regarding the disclosure of insurance policies is worded differently than Ontario's, Abu-Hmaid suggests B.C. claimants also need to disclose the existence of an ATE policy, but not necessarily its terms. Knowing that a claimant is insured will give a good sense of the terms of coverage since policies appear to be fairly uniform in Canada.

Defence litigators and insurers alike will want to watch what else the courts have to say about ATE policies moving forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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