Update on Litigation Insurance – Recovery as an Assessable Disbursement
By: Tullio A. D’Angela (July 18, 2019)
Currently, there is a debate in Ontario whether litigation insurance premiums are recoverable as an assessable disbursement. Defendants argue that the premiums are not a compensable disbursement. When discussing settlement with defence counsel, request for payment of the premium is often refused outright.
The case law to date appears to land on either side of the debate.
In Markovic v. Richards, 2015 ONSC 6983 (CanLII), the court held at paragraph 7:
While it is clearly the plaintiff’s prerogative to obtain ATE insurance, I do not accept that such premium should be reimbursed by the defendants as a compensable disbursement. Such disbursements have not, as far as I am aware, ever been entertained in Canada and have certainly not been the subject of legislative reform as was the case in the UK. I can think of no policy reason that such should be compensated as a taxable disbursement. Existence of the policy may well provide comfort to the plaintiff, it is however an expense that is entirely discretionary, does nothing to advance the litigation, and may in fact even act as a disincentive to thoughtful, well-reasoned resolution of claims. I do not think it fair and reasonable that an insurer be expected to cover the disbursement for this payment of premiums. Moreover, as I understand it, ATE insurance is offered by DAS Canada, a full-service legal expense insurer that is recognized by the Canadian Bar Association. DAS provides legal expense coverage that can be purchased by individuals who need to pursue legal action, covering disbursements and adversary costs in the event of an unsuccessful case. It appears that the premium is only payable if the case is successful.
In Foster v. Durkin, 2016 ONSC 684 (CanLII), the court held at paragraph 15:
In analyzing the written submissions of counsel, I believe that disbursements claimed by the plaintiff’s counsel are generally reasonable. I discount the fee paid to DAS Insurance for reasons that were well expressed by Milanetti J. in Markovic v Richards et al., (2015) ONSC 6983 (CanLII), in particular at para. 7.
In Valentine v. Rodriguez-Elizalde, 2016 ONSC 6395 (CanLII), the court held at paragraphs 70 and 71:
I agree with the defendant that the cost of adverse cost insurance, or after-the-event insurance (“ATE”), is not an assessable disbursement. Such insurance is not necessary for the plaintiff to advance or develop the various heads of damages claimed in this action.
I agree with the reasoning of Milanetti J. in Markovic v. Richards, 2015 ONSC 6983 (CanLII), at para. 7, where she states that “[w]hile it is clearly the plaintiff’s prerogative to obtain ATE insurance, I do not accept that such premium should be reimbursed by the defendants as a compensable disbursement.” See also Foster v. Durkin, 2016 ONSC 684 (CanLII).
In Armstrong v. Lakeridge Resort Ltd., 2017 ONSC 6565 (CanLII), the court held that the premium for adverse costs insurance was recoverable. The court noted at paragraph 21:
Relying on Markovic v. Richards et al., 2015 ONSC 6983 (CanLII), defence counsel submitted that the plaintiffs’ disbursement for costs insurance should not be allowed. With respect, I disagree. In this case, the costs of advancing even the claims on which the plaintiffs were successful were extremely large. Also, in general, even the strongest claim of a plaintiff may not be successful depend on how the evidence comes out and how it is perceived by the trier of fact. Without costs insurance, the fear of a very large adverse costs award would cause many Plaintiffs of modest means to be afraid to pursue meritorious claims. It is in the interests of justice that Plaintiffs be able to pursue meritorious claims without fear of a potentially devastating adverse costs award.
Most recently, in Stewart et al. v. Wood et al., 2019 ONSC 3931 (CanLII), the court reviewed the state of the case law. The court held at paragraphs 23 and 24:
The Plaintiffs seek costs at partial indemnity rates in the amount of $95,096 plus HST of $12,362 for a total of $107,458. They also seek disbursements of $29,070. Included in the list of disbursements is the insurance premium of $1,458 the Plaintiffs paid to obtain $100,000 coverage for possible adverse costs insurance. The Defendants state that it is settled law that such an insurance premium is not a recoverable disbursement. I disagree. There are conflicting opinions on this issue. …
I find adverse costs insurance to be an “access to justice” issue. For that reason, I hold it to be a compensable disbursement to be included as a costs obligation payable to the Plaintiffs. This amount is $1,458.
I submit that the dichotomy in the decisions can be summed up as a dispute between concerns that litigation insurance will lead to litigious behavior versus it being an access to justice issue. In my experience, the common concern of a prospective client is that cost consequences when litigation is undertaken. Many injured parties are of meager means and the idea of personal exposure to costs is frightening to them. Without this insurance, those with legitimate claims may think twice about proceeding with any litigation.
The idea that this insurance will lead to litigious behavior is one that I believe is purely anecdotal. First, litigation insurance policies often include a provision that if there is no chance of success then the policy will not respond to any claims made. Thus, the client must be aware that this could result in personal exposure.
Second, Rule 3.2-2 of the Rules of Professional Conduct mandate that a lawyer be honest and candid when advising a client. Therefore, the lawyer must be forthright when providing an opinion on the merits of the client’s claim even if that means that the claim is without merit.
Finally, the amount that the insurance will cover (usually it is a standard $100,000 for costs and disbursements) would likely not even cover the cost of a one- or two-week trial, when one considers the costs to prepare and conduct the trial. Thus, the client could still be looking at a claim in excess of the policy limits and will, therefore, still be personally exposed.
Ultimately, I do not see this dispute resolving anytime soon unless and until there is a decision at the appellate level.
About Tullio A. D’Angela
Tullio is the founder and principal of Tullio A. D’Angela Professional Corporation. Tullio specializes in personal injury law and litigation. Please feel free to contact Tullio to discuss your matter.