There is a fair degree of confusion around new legal insurance and indemnity products in Ontario. We researched the histories of these products, companies offering them in Ontario, and articles written by and about them. We also interviewed several prominent personal injury lawyers in Ontario.
Adverse cost coverage is also known as “legal costs protection”. The products on the market provide coverage to litigants who face paying costs to a successful opponent on motions, from pre-discovery right through to a trial. This can protect clients from potential expenses not covered by the contingency fee agreement. It protects the law firm against costs that may arise from the loss of a case, and can cover your disbursements and your opponent’s costs and disbursements.
While only a few companies offer such products in Canada now, the number of providers is expected to grow in the near future.
Being relatively new in Ontario, these products raise many questions, including:
- In the fine print, some policies require routine reporting – does this breach solicitor-client confidentiality rules?
- Do these policies give control of the case to the company selling the product?
- Can defence counsel obtain the provider’s file? Or is that file protected by litigation privilege?
The principle of client-counsel privilege, and the rules of maintenance and champerty, keep control of the case in your hands. Defence counsel cannot obtain the file from the provider.
- Will this insurance encourage defendants to fight a claim, knowing that if they win the trial they will be able to obtain any cost order?
- Is the premium or fee recoverable as a special damage, or can it be claimed as an assessable disbursement?
While new in Canada, there is considerable UK experience that could apply here:
- Insurance levels the playing field, so a defendant insurer is more likely to settle early. Anecdotal experience in Ontario supports this. At least one company in Ontario asks the plaintiff’s lawyer to disclose the policy’s existence to the defence, to facilitate settlement.
- In UK, the courts have found it to be a fully recoverable disbursement. There has not yet been a test case In Canada.
Several lawyers have raised questions and concerns about the implications of these products for their practice, including: Do I have to insure all of my cases, or can I “cherry-pick”?
Each provider uses different jargon, has different pricing, obligations and payout, and each policy can be confusing. One personal injury lawyer likened this to cellphone contracts: “Difficult to compare to each other, let alone decipher.”
Comparing the coverage offered by an insurance company and an indemnity company, we see these similarities:
- No upfront cost
- No fee or premium is due if the case is discontinued or abandoned
- Approval is automatic for early-stage cases
- In the application, lawyers must state that, in their opinion, the case has at least a 51% chance of success.
- The company providing protection does not manage, control, or direct the litigation in any way.
- Arbitration costs are covered.
- Interim cost orders are covered.
- Providers can cancel or suspend the coverage if the client rejects a reasonable offer that counsel advises them to take.
We find these differences when we compare these companies’ products:
- The insurance company combines Adverse cost and Disbursement coverage in their policy, while the indemnity provider offers them separately.
- Pricing and Protection amount: Premiums or fees range from $950 to $3,000 for $100,000 coverage at the pre-discovery phase.
- The indemnity company lets the plaintiff and their lawyers determine the amount of coverage. Pricing is a percentage of coverage. This percentage increases as the case progresses, from 3% at retainer, going up at each of discovery, mediation, pre-trial and trial. Beyond the discovery phase, pricing is subject to file review.
- The insurance company has a minimum $100,000 policy. The premium is set when the application is made.
- For unsuccessful claims:
- The indemnity company pays any adverse costs owed by the plaintiff after having set off the adverse amount with any awarded damages (so the worst result is that the client owes nothing)
- The insurance company allows the plaintiff to keep the awarded damages and pays out adverse costs or disbursements on top (so the client gets their awarded damages).
- If the client changes lawyers, the insurance is portable (i.e., transferrable by the client) in some circumstances, while the indemnity is not portable.
- The insurance company covers the plaintiff, while the indemnity company aligns its interest with the lawyer.
- The indemnity company seems more amenable to case-by-case “cherry picking” by lawyers, but the fees are higher.
- Some coverage includes a set-off clause, while some does not.
Ontario Lawyers’ Perception
The Law Society of Upper Canada supports such products and sees their “potential to make legal services more accessible and affordable”. Former Ontario attorney-general Marion Boyd, former chair of the Law Society’s Access to Justice committee, thinks that even with its limitations, private legal coverage could help make justice more affordable.
We asked several personal injury lawyers in Ontario for their impressions of these products. These professionals all have some familiarity with these products. We asked:
- Does this protection allow more plaintiffs to proceed with their cases?
- Does this protection get better settlements?
- Are there any drawbacks to these products?
- Have you ever used these products? Why or why not? Is the cost reasonable or prohibitive?
- Would you recommend these products to clients? Why or why not?
Leonard Kunka with Thomson Rogers sees no drawbacks to these products, and believes they help level the playing field, allowing plaintiffs to feel “more bullish” about their claims. He sees the benefits akin to those of litigation loans, taking pressure off the plaintiff and making a claim “economically feasible”. While he has not used this type of insurance, he describes the products he’s seen as, “relatively expensive, but it might not be unreasonable.”
Marc Spivak,Managing Partner of the Personal Injury Group of Devry Smith Frank LLP, notes that larger firms are accustomed to covering disbursements as they proceed with the client and may be in a better position to absorb losses from adverse findings. He feels that the protection offered by these products “might ease things for smaller firms” and protects those clients with assets at stake. He agrees that there can be a tactical advantage in having the protection available.
Insurance and indemnity providers would like law firms to protect their entire portfolio of cases. But lawyers we spoke to would rather “cherry pick” their cases, even if the fees are higher. And if personal injury law firms are winning over 90% of their cases, does the math make sense?
About Nudorra Capital
Nudorra Capital is a litigation and pre-settlement loan company. During litigation, clients may find themselves facing financial difficulties. At Nudorra Capital, we recognize the sensitivity of the situation and provide loans professionally, timely (usually within a 24 to 48 hour period) and at the most competitive rates in the industry.
Our simple application process, detailed loan management service and low interest rates, mean less work for you and your staff and a greater appreciation by your client, of the settlement you secure.
Our loan’s do not require interim payments and are paid back when the case is settled.
We believe as a company, that your client’s priorities should go towards healing themselves first, not worrying about whom to pay. To find out more about how we can help, please call us at (416) 342-9590 or email our President Jeffrey Gottheil at firstname.lastname@example.org