Plaintiffs should own their legal expenses insurance policies

All parties benefit when clients are named as the holders of legal expenses insurance (LEI) policies, Nick Robson, managing director of JusticeRisk Solutions (JRS), tells AdvocateDaily.com.

JRS, Canada’s oldest specialist litigation insurance brokerage, recently merged with U.K.-based TheJudge Global. Although the market for litigation funding and insurance is relatively young in Canada, Robson says some providers here have begun offering products that name law firms, rather than their clients, as the owners.

That approach is a departure from traditional practice in the field in Canada and abroad, he explains.

“Clients are the ones paying for the policy, and who will have the benefit of it if they lose their case, so they are the ones who should be listed on the certificate,” Robson says. “It’s really an issue of the protection of the public.”

When policies are issued to law firms on behalf of clients, it means clients are unable to make claims on policies themselves, and they could be denied coverage altogether if they decide to switch lawyers during the litigation process, he adds.

“If a client changes counsel, the policy stays with the old lawyer, and would be cancelled,” Robson says.

In addition, he says, without a policy issued in their own name, plaintiffs may find themselves unable to take advantage of a recent case in which the claimant was allowed to recover the cost of after-the-event insurance premiums in a personal injury action.

The judge in the case ruled that the defendant should pay for the premiums because it was in the interests of justice for plaintiffs to be able to pursue valid claims without fear of a large adverse costs award.

“How can you hope to recover those costs when you don’t have an insurance certificate in your name showing that you paid for it,” Robson says. “In the end, it’s better when everyone is safe and secure in the knowledge that the person who pays for the insurance has some semblance of control over the policy, rather than relying on third parties.”

For law firms, taking ownership of an LEI policy also poses a risk, Robson says, noting that most clients will rely on their lawyer to explain the details and consequences of this type of insurance.

“I would be extraordinarily surprised if clients understood the issues at play here,” Robson says. “It could put the lawyer in conflict if no independent legal advice is taken.”

Some arrangements could even result in law firms acting effectively as insurers, with policy providers taking on a reinsurance role.

“That opens up some ethical and regulatory issues with the law society that could be quite dangerous,” Robson says.