Many insurers and defence counsel are now aware of the growing use of adverse cost insurance, also known as “after-the-event” insurance (“ATE insurance”), in personal injury litigation. This insurance is typically a policy purchased by a plaintiff in a lawsuit to provide protection in the event of a judgment for costs against the plaintiff if they are unsuccessful at trial. The previous year saw a number of new decisions that discussed both the potential recoverability of the insurance premium as a disbursement and whether the policy itself is producible in the course of litigation.
The courts, thus far, have been consistent when considering whether the plaintiff’s ATF insurance premium was a compensable disbursement. In Markovic v. Richards, 2015 ONSC 6983, Milanetti J. did not accept that such a premium should be reimbursed by the defendants, noting that: (i) it would not be compensable as a taxable disbursement, (ii) the premium appeared to only be payable if the case was successful, and (iii) the expense was entirely discretionary. Milanetti J. further commented that ATE insurance “does nothing to advance the litigation, and may in fact even act as a disincentive to thoughtful, well-reasoned resolution of claims.”
Subsequent decisions on disbursements have followed Markovic. In Valentine v Rodriguez-Elizalde, 2016 ONSC 6395, Firestone J. followed Markovic and in commenting that ATE insurance was not an assessable disbursement, stated that “[such] insurance is not necessary for the plaintiff to advance or develop the various heads of damages claimed in this action.” A recent British Columbia decision, Wynia v. Soviskov, 2017 BCSC 195, also considered the novel issue of whether ATE insurance premiums were an assessable disbursement. The decision followed the provincial Supreme Court Civil Rules and a British Columbia Court of Appeal decision in determining that the cost of the ATE insurance coverage was not a proper or necessary disbursement incurred in the conduct of the proceeding. Wynia also cited Markovic approvingly.
ATE insurance policies have also factored into other costs decisions. In the costs endorsement in Robbins v Sears Canada Inc., 2017 ONSC 2571, the plaintiff, who was unsuccessful at trial, attempted to argue that a six-figure costs award against her was unreasonable and would cause a great financial burden on her. She alleged that she was impecunious. Edwards J. ruled that there was no evidence before him of impecuniosity and that he was not prepared to consider her financial situation in proceeding to award costs to the defendant. However, Edwards J. further noted that the plaintiff’s Bill of Costs contained a disbursement for an adverse cost insurance premium. There was no further evidence on this insurance, and the disbursement was not in issue. Nonetheless, Edwards J. stated that “[where] the plaintiff clearly has some type of adverse cost insurance, and has not advised the court of the nature and extent of it, it is disingenuous for the plaintiff to argue impecuniosity…”
The production of an adverse costs insurance policy for inspection in the course of a proceeding also continues to be litigated. In Abu-Hmaid v. Napar, 2016 ONSC 2894, the plaintiff had refused to answer at discovery whether they had adverse cost insurance or not. At issue was whether Rule 30.02(3) of the Ontario Rules of Civil Procedure, which requires production of an insurance policy that may satisfy, indemnify or reimburse a party in a judgment, required production of the adverse costs insurance policy. Master Short ruled that the existence of ATE insurance was relevant to the resolution of personal injury disputes, and ought to be disclosed at the same stage as disclosure by a defendant, as required by Rule 30.02(3). However, he ruled that the specifics of the policy did not have any probative value in the case before him; it was adequate to simply advise whether or not coverage of this nature had been obtained.
However, Abu-Hmaid was distinguished in Fleming v Brown, 2017 ONSC 1430, in which Grace J. undertook an analysis of Rule 30.02(3) in the context of a motion by the defendant for production of the plaintiff’s ATE policy, the existence and limits of which had already been disclosed. Production of the policy, however, had been refused at discovery. Grace J. found Abu-Hmaid, and other authorities cited by the plaintiff, to be unhelpful given the express wording of Rule 30.02(3). Grace J. commented that, “[generally] speaking, obligations with respect to documentary discovery are determined by whether the document is ‘relevant to any matter in issue’” and that Rule 30.02(3) served “to expand the obligation.” All parties to a proceeding were required “to disclose and if requested, to produce for inspection policies of insurance that fall into the categories established” by Rule 30.02(3), which did not import the words “relevant to an issue in the action.” Grace J. found that Rule 30.02(3) applied to policies of insurance “even if irrelevant to an issue in the action” and ordered production of the policy for inspection. He commented that the “policy’s existence and terms may well play a role, even if only strategically, in how this action is conducted. In my view, that is enough to trigger the obligation to produce.”
Further complicating matters was the recent decision in Jamieson v. Kapashesit et al, 2017 ONSC 5784, which distinguished Fleming. On the morning of the commencement of trial, the defendants brought a motion seeking production of the adverse costs insurance policy. The plaintiffs sought to distinguish Fleming, not by commenting on the approach of Grace J. in that decision, but on the facts of the policy in Jamieson. In this case, the policy was a blanket policy taken out by the plaintiff’s legal representatives and named only the law firm, with no reference to the plaintiff or any other clients (In Fleming, the policy was taken out in the name of the plaintiff). Since the policy applied to all clients of the law firm representing the plaintiff, it was argued that disclosing the terms could be a breach of solicitor/client privilege and may provide a strategic advantage to the defendants. Further, Rule 30.02(3) requires “a party” to produce a policy for inspection. The law firm in this case was not “a party” to the proceeding and the plaintiff did not have the policy within their possession, control or power. Cornell J. agreed with the plaintiffs and declined to order production of the policy. Cornell J. distinguished Fleming on the basis that the policy belonged to the law firm and not the plaintiff.
While there have been consistent decisions that an ATE insurance policy premium is not an assessable disbursement, the water is much murkier on the requirement to produce these policies in a proceeding. Defence counsel and insurers should continue to inquire about the existence of these policies in the course of personal injury actions and seek their production where appropriate.
Update: A recent case has muddied the waters on claiming adverse costs insurance as a disbursement prior to trial. In the costs ruling in Armstrong v. Lakeridge Resort Ltd., 2017 ONSC 6565, Salmers J. did not follow Markovic when the defendant argued that the disbursement should not be allowed. Salmers J. found the costs of advancing the plaintiffs’ claim was “extremely large” and that “[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.” Salmers J. stated that allowing plaintiffs to “pursue meritorious claims without fear of a potentially devastating adverse costs award” was in the interests of justice. In Armstrong, Salmers J. found that the plaintiffs had advanced their claims as there were genuine triable issues on all claims.
It will be interesting to see if future cases still follow Markovic or if the ruling in Armstrong will be persuasive. In interim, defendants in personal injury actions should be mindful of conflicting case law.