Across Ontario, Insurance and Indemnity companies are approaching lawyers for business. These products have some basic similarities. This has bred a lot of confusion about these products – lawyers (and even judges) have mistakenly used the term “insurance” to describe an indemnity product.

THE BOTTOM LINE: Insurance policies have distinct advantages over Indemnity contracts. Insurance companies are licensed and regulated, their capital is protected, and they have decades of global experience. The Insurance product gives you Delegated Authority. And courts in Ontario are finding After-The-Event (“ATE”) insurance is a strong weapon against Security for Costs.

We have researched the two leading companies offering these products in Ontario, their features and benefits, and recent Ontario cases. (Terms and figures in this article based on information available as of August 2015.)

Court cases

Two recent Ontario cases show the additional security arising from ATE Insurance:

  • In the case of Brent Grotz v. 1392275 Ontario Inc. o/a Hilton Garden Inn Toronto/Markham et al the plaintiff’s lawyer was able to use ATE Insurance to defeat a Security for Costs motion.
  • In the case of Alary v. Brown, 2015 ONSC 3021, the Ontario court found the Indemnity product to be weaker than Insurance and thus not able to defeat a Security for Costs order.

Globally, ATE insurance is a mature mainstream product, developed primarily in the United Kingdom where it is now mandatory. Recovery of ATE insurance premiums as disbursement was proven in Callery v Gray

[2001] EWCA Civ 1117 which led to ATE insurance being mandated by the Solicitors Regulatory Authority (part of the Law Society of England & Wales).

Product differences

The key difference is that Insurance is offered by a licensed Canadian insurer, who is subject to strict rules and regulations under the Insurance Companies Act, which requires rigorous capital requirements and practices, including access to an Ombudsperson. An Indemnity agreement is a non-regulated contract.

If an Insurance company goes under, their capital base is protected via the government-approved, industry-funded Property and Casualty Insurance Compensation Corporation (PACICC), but an Indemnity company’s base is limited to its investors’ capital. You can contact the federal Office of the Superintendent of Financial Institutions (OSFI) to discuss the benefits of using a licensed and regulated insurer, and the potential ramifications to your firm of not doing so.

Another difference is the set-off clause in the Indemnity product, which is triggered when dealing with failing to beat offers (Rule 49). The Indemnity product will set off the damages against any adverse costs awards, only kicking in indemnity when the damages reach $0. The Insurance product does not have such a clause, so the policy pays immediately and on top of the damages, which results in your client keeping their win.

We find these additional differences when we compare these products:

  • The Insurance product covers both Disbursements and Adverse costs, while the Indemnity product offers Adverse costs coverage separately.
  • The Insurance product gives Delegated Authority to the lawyer, giving you surety when speaking to clients. (This authority is not available with the Indemnity product.)
  • If the plaintiff loses the case, the Insurance product always covers the premium. The Indemnity fee might (or might not) be waived if the plaintiff loses.
  • For unsuccessful claims:
    • The Insurance product allows the plaintiff to keep the awarded damages and pays out adverse costs or disbursements on top.
    • The Indemnity product pays costs owed by the plaintiff (after awarded damages) and the client owes nothing.
  • If the client changes lawyers, the Insurance product is portable (i.e., transferrable by the client) in some circumstances, while the Indemnity product is not.
  • Protection amount and Pricing:
    • The Insurance product has a minimum $100,000 policy. The premium starts at $1,350 and is set when the application is made.
    • The Indemnity product 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.

This table summarizes product differences:

DIFFERENCESLeading Insurance companyLeading Indemnity company
RegulationInsurance Companies ActNon-regulated contract
Issuer’s capitalGovernment-approved PACICC maintains a liquidity fundLimited to investors’ capital
Disbursements and Adverse costsCovers bothOffers Adverse costs coverage separately
Delegated AuthorityGiven to plaintiff’s LawyerNot available
Plaintiff loses caseCovers premiumFee might/not be waived
Set-off clauseNoYes
Unsuccessful claimAllows plaintiff to keep awarded damages and pays out adverse costs or disbursements on topPays costs owed by plaintiff (after awarded damages) and plaintiff owes nothing
Client changes lawyersPortable (i.e., transferrable by client) in some casesNot portable
Amount of coverageMinimum $100,000Plaintiff and their lawyers determine amount
PricingPremium starts at $1,350Fee depends on stage of litigation:

Pre-discovery: 3% if settled pre-trial, 4% at trial.

Post-mediation before pre-trial: 6.5% if settled pre-trial, 9.5% at trial.

Product similarities

Comparing the Insurance and Indemnity products available in Ontario, you will see these similarities:

  • No upfront cost
  • No insurance premium or indemnity fee is due, if the case is discontinued or abandoned.
  • Approval is automatic for early-stage cases.
  • In the application, lawyers must state that, in your 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 your client rejects a reasonable offer that you advise them to take.

As you may be aware, our firm has been working diligently to find the best “After-The-Event” legal cost protection on the market for both lawyers and plaintiffs.

We reviewed several options: 1) offering our own indemnity product, 2) securing a broker’s license and providing an insurance product, or 3) forming a strategic relationship with a well-established insurance company and broker and offering their products to our clients. We hired an independent researcher to analyze the products available today, to see which ones provide the best protection at the most reasonable costs.

We are pleased to say, that we have chosen to endorse the “ATE Insurance Product” (over an indemnity product). The overwhelming advantages of costs, security, and protection, for both lawyer and plaintiff, speak for themselves.

Starting immediately, Nudorra Capital will be endorsing “NuFile Protect” an ATE Insurance product offered through a strategic relationship we have with our Insurance Broker. I assure you, that this is the best and most secure product available today. For further information or to set up an appointment please contact Jeffrey Gottheil at Nudorra Capital at 416-342-9590 or email at your earliest convenience.