With the advent of Adverse Costs (or After-The-Event, ATE) insurance in Ontario, it may appear to an outsider that a plaintiff is now in much the same situation as the defendant; an insurer is there to indemnify the individual should their case be unsuccessful. In reality the defendant insurer is still a key proponent in the running of their insured client’s litigation (fully funding it, and often actually running the file itself with in-house counsel), whereas the plaintiff insurer has no oversight in the handling of their policyholder’s case by a third party plaintiff lawyer, and largely sits in the background until the conclusion of the matter. Recently, it has been discussed in Canadian courts whether the plaintiff insurer should be able to remain distant from litigation, or whether their presence will have an influencing factor, or whether it could actually owe a duty to the defendant as well as their insured plaintiff .The main purpose of an ATE insurance policy in a Personal Injury case is to indemnify the policyholder for the disbursements and adverse costs risks of being unsuccessful in the pursuit of their case. This cover can include coverage for their own disbursements (depending on the policy), however the policy will not indemnify the plaintiff from their own lawyers’ fee. For example, in the British Columbian case of Clubine v. Paniagua,’ the plaintiff was unsuccessful in beating a formal offer, giving the defendant the right to apply for costs from the date that their offer was rejected by the plaintiff. The plaintiff in this matter had an ATE insurance policy that specifically provided cover for such a peril. The ATE insurance policy stated that, so long as the policyholder and their lawyer believed that the prospects ofbeating the offer to settle was above 51% in their opinion, the policy would respond should the offer not be beaten. The defendant highlighted the fact that the plaintiff had a policy and argued that the existence of the policy effectively undermined the intent of the offer (by allowing the plaintiff to avoid the punitive costs consequences). Here, the court weighed favourably in the defendant’s costs application because the client had an ATE policy. This was an interesting finding as the plaintiff counsel was not indemnified, and the cover provided was provisional based upon the professional view of plaintiff counsel; and may provide pause of thought to the plaintiff lawyer in making such a recommendation to their client.
The winnowing function of the costs rules is obviated by ATE insurance; doubtful cases can proceed through litigation without risk of adverse costs consequences. I conclude in this case that this insurance had such an effect.
The finding in Clubine is most curious when compared with Canfield v. Brockville Ontario Speedway’ and the later decision of Stevens v. Creusot. In Canfield the defendant used a similar argument as in Clubine, specifically that the plaintiff’s ATE insurance policy should be considered a factor in determining the costs, however the court found that neither the existence nor the amount of coverage had any bearing upon costs.
In Stevens the plaintiff had not purchased ATE insurance and, having been unsuccessful in the action thus facing costs consequences, cited Clubline in his request for leniency in any costs order; for example if a plaintiff is to be effectively punished for having ATE insurance (for example not having to face the financial exposure) then surely a plaintiff who does not have such costs protection should expect this to be factor in the costs determination. However, the court found othenvise: that the failure of Afr. Stevens to purchase ATE insurance is not a factor that he can rdy on.’
The recent appeals court decision of Peter B. Cozzi Professional Corporation v. Sze affirmed the findings in the earlier hearing! The court grappled with the questions of what, if any duty the ATE insurer has to the defendant in regards to who the beneficiary of an ATE policy should be and what authority the insured plaintiff has in the determination of where the proceeds of an NEE insurance policy should be directed and on what priority. Here the plaintiff. Mr. Nguyen. had an ATE insurance policy that provided coverage for 5100,000, and the coverage included adverse costs and own disbursements. Unfortunately, the adverse costs order was higher than the amount of the ATE insurance policy provided, and the plaintiff also had a further disbursements account outstanding of $37,858.91. Here, the defendant insurer failed in its bid to receive payment directly from the plaintiff ATE insurer (MS) and further failed in it’s bid for its costs to be placed in priority of the plaintiff’s disbursements.
It should be a great relief to plaintiff counsel that the Cowie decisson confirmed the ATE =SUMS policyholder’s authority to dictate the use of any proceeds from their own policy. It should also be a relief to ATE Insurers that they need not far breathing their duty of good faith in paying proceeds to their policyholder instead of applying the proceeds of the policy directly to a Costs Orden again permitting the ATE insurer to remain outside the proceedings of their insureds’ litigation.
The issue of priority does not arise because the only beneficiary of the ATE Policy was Mr. Nguyen. According to DAS, once the Proceeds are paid to the beneficiary, the beneficiary can decide how to apply the proceeds. Based on the terms of the ATE Policy, this is the only logical result?
In the costs matter of Loye v. Bowers’° the defendant insurer sought an order that the plaintiff’s lawyer personally pay the costs that were awarded to the plaintiff following an unsuccessful trial. The plaintiff in this case had an ATE policy that was suspended shortly before trial commenced, and the suspension was effected after the plaintiff lawyer disclosed information related to the conduct of the insured to the ATE insurer (as required under the terms of the plaintiffs’ ATE insurance policy). The inference was that plaintiff counsel, believing that their client’s case was weak, purposefully sought the suspension of their impecunious client’s ATE insurance policy so as to pressure the defendant into settling (as with no ATE policy available, the defendant would not recover their fees should they indeed successfully defend the trial). This was even though the plaintiff was successful at the trial in proving liability. The court rejected such an inference and did not find that the lawyer acted improperly. The duty of plaintiff counsel to disclose information to their client’s ATE insurer depends largely on the policy terms itself, but all parties to an insurance contract have a general duty of good faith. As the policyholder has accepted the terms of their ATE insurance policy (as disclosed to them by their counsel) and have effectively instructed their counsel to abide by them, conflicts of interest in disclosure terms under the policy should be avoided. Plaintiff counsel should be careful to examine the ATE policy that they are arranging for their clients. The duty of disclosure also applies to the disdosure of the ATE policy to the defendant” Depending on what information must be disclosed, such disclosure may undermine the otherwise perceived strength of the ATE insurance policy – not all ATE insurance policies are equal, and some policies terms may be exploited by the defendant. Common differences between policies include the coverage of failing to beat with-prejudice offers, and some (albeit rare) ATE insurance policies may contain expiry dates; potentially encouraging the defendant to draw out the litigation until their opponents’ ATE insurance policy expires.
Disclosure can provide added benefits to the plaintiff’s case as well. When it comes to Security for Costs motions, for instance disclosing an ATE insurance policy can be significantly advantageous to a plaintiff; the matter of Frantz v. NB Thrilling Films 4 INC et al” found the ATE insurance policy to be appropriate security, avoiding the further expense of a court bond, etc. The security of an ATE policy is determined by the specific terms within its wording; not all ATE insurance policies have been found to be of adequate strength, such as the case of Mary v. Brown” which included a cancellation clause.
The question of whether a lawyer has a duty to inform their client of the availability of ATE insurance is so far untested in Canada. However such a duty is well established in jurisdictions such as England & Wales where the Solicitors Code of Conduct” provides that a lawyer must give their client “the best information possible about the likely overall cost of a matter both at the outset and, when appropriate, as the matter progresses. In particular you must … discuss with the client whether their liability for another party’s costs may be covered by existing insurance or whether specially purchased insurance may be obtained!” A client who is ultimately unsuccessful at the conclusion of their case, especially if there is a significant adverse costs liability, may look to the costs advice that they received from their lawyer at the beginning of their retainer. ATE insurance gives rise to certain duties and responsibilities to all parties involved, and ATE insurers are not exempt However, with due diligence on the behalf of the plaintiff lawyer who arranges the insurance for their client in examining and understanding the terms and conditions properly, and most importantly disclosing same to their client, it can certainly be a valuable asset.
Nick Robson is the Vice President and General Counsel for TheJudge
1.Clubine v. Paniagua, 2018 BCSC 1076
2. The Honourable Madam Justice Watchuk, Clubine v. Paniagua, 2018 BCSC 1076
3. Canfield v. Brockville Ontario Speedway, 2018 ONSC 3288
4. Stevens v. Creusot 2020 BCSC 1263
5. The Honourable Madam Justice Fitzpatrick, Stevens v. Creusot 2020 BCSC 1263
6. Peter B. Cozzi Professional Corporation v. Szot, 2020 ONCA 397
7. Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274
8. Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274
9. Nishikawa J., Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274
10. Loye v. Bowen, 2020 ONSC 782
11. Fleming v. Brown (2017 ONSC 1430)
12. Frantz v. NB Thrilling Films 4 INC et al (2017 ONSC 4637)
13. Alary v. Brown, 2015 ONSC 3021
14. Solicitors Regulation Authority, as per the Legal Services Act 2007 c.29
15. Solicitor’s Code of Conduct (England & Wales) 2011, Paragraph 2.03