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Adverse costs insurance a compensable disbursement

Monday, July 29, 2019 @ 11:10 AM | By Kris Bonn

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Kris Bonn
Over the past 10 years, adverse costs insurance has become more prevalent in Ontario, particularly in the field of personal injury law. For those not familiar with adverse costs insurance, it provides insurance if a party’s legal action fails and the party is ordered to pay costs to the other side of the litigation. Adverse costs insurance is commonly referred to as “after the event insurance” (ATE).

Several companies offer ATE insurance in Ontario. Most offer coverage of $100,000, $150,000 or $200,000 of costs protection. The premium is usually contingent on the party being successful in the case. If the party successfully settles the case, the party pays a premium for the costs protection. If the party is unsuccessful in the case, the insurance is available to cover an adverse costs award and no premium is paid. The premiums are in the range of $1,200 to $2,000.

In Ontario, ATE insurance has been tailored and marketed to injured plaintiffs and their lawyers. Most defendants in personal injury actions are well-funded insurance companies and do not need the protection of ATE if they lose a case.

Plaintiffs are not similarly situated. Most plaintiffs are of modest means. An adverse costs award against them would be devastating. Many plaintiffs may choose not to pursue meritorious claims out of fear of being burdened with a large adverse costs award. ATE insurance levels the playing field and provides plaintiffs with meritorious claims access to justice.

The question is whether the defendant in a personal injury action ought to be responsible for paying for that protection. That is, at the conclusion of a case, should the defendant pay the cost of the ATE premium as a compensable disbursement?

Justice Jane Milanetti was the first judge to consider this issue in Ontario in the case Markovic v. Richards et al. 2015 ONSC 6983. She held that the defendant should not be required to pay the costs of the ATE premium. In her decision, she wrote that the insurance “does nothing to advance the litigation, and may in fact even act as a disincentive to thoughtful, well-reasoned resolution of claims.”

A number of cases followed Justice Milanetti’s reasoning and disallowed the ATE insurance premium as an assessable disbursement. Until recently, the only decision that allowed the ATE insurance premium as an assessable disbursement payable by the defence was Armstrong v. Lakeridge Resort Ltd. 2017 ONSC 6565.

In the Armstrong case, Justice David Salmers considered Markovic, but determined that the expense involved in pursuing the litigation was extremely large and 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.”

Notwithstanding Justice Salmers’ decision in Armstrong, the prevalent belief in the personal injury bar was that the ATE insurance premium was not an assessable disbursement and defendant insurers were refusing to pay this disbursement to plaintiffs. This practice should now change in light of Justice Wolfram Tausendfreund’s decision in Stewart v. Wood et al. 2019 ONSC 3931.

In Stewart, Justice Tausendfreund referred to Markovic and its progeny that disallowed ATE insurance premiums as an assessable disbursement, as well as Justice Salmers’ decision in Armstrong that allowed the expense as an assessable disbursement. Justice Tausendfreund concludes at para. 24 that adverse costs insurance is an “access to justice issue” and held that it is a compensable disbursement to be included in the costs obligation payable to the plaintiffs.

Stewart is the most recent decision on this issue. In an age where access to justice is a big concern, this is a welcome development in the law. While most plaintiffs in personal injury actions have contingency fee agreements with their counsel, they are still at risk of adverse costs if the case is not successful.

Insurance companies are taking more and more cases to trial, even when liability is not in issue. ATE insurance provides plaintiffs of modest means the ability to have their day in court and not risk losing their house.

On the other side, defendant insurers should also welcome the widespread use of ATE insurance. In the event that they successfully defend a claim, they can have some assurance that they will collect costs from the plaintiff. Given the potential benefit to the defendant insurer and the benefit of providing access to justice, it makes sense that the cost should be a compensable disbursement.

Kris Bonn is the managing partner at Bonn Law, a firm with offices in Belleville and Trenton that focuses on helping people with personal injury cases, medical malpractice and long-term disability denials. Kris is currently the vice-president of the Ontario Trial Lawyers Association and president of the Brain Injury Association Quinte District.

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