Adverse Cost Insurance & Its Adverse Effects

Adverse cost insurance, or legal expense insurance, is celebrated for “leveling the playing field.” It provides access to justice for plaintiffs that are not financial equipped to face the adverse effects of pursuing litigation, primarily adverse cost awards, on otherwise meritorious claims. However, there is concern that legal expense insurance will lead to a more litigious culture that ignores attempts at settlement and disincentives alternative means to pursue a just and sound resolution.

Justice Milanetti notes in the decision in Markovic v. Richards, 2015 ONSC 6983:

“Existence of the policy may well provide comfort to the plaintiff, it is however an expense that is entirely discretionary, does nothing to advance the litigation, and may in fact even act as a disincentive to thoughtful, well-reasoned resolution of claims. I do not think it fair and reasonable that an insurer be expected to cover the disbursement for this payment of premiums.”

To battle the disincentive that insurance policies create in pursuing reasonable resolutions or settlements in litigation, Master Short in Abu-Hmaid v. Napar, 2016 ONSC 2894 considered whether policies of legal expense insurance, or adverse cost insurance, is required to be disclosed. Rule 30.02(3) was specifically considered, which states that a party shall disclose and, if requested, produce for inspection any insurance policy under which an insurer may be liable (a) to satisfy all or part of a judgment in the action, or (b) to indemnify or reimburse a party for money paid in satisfaction of all or part of the judgment, though no information concerning the insurance policy is admissible in evidence unless it is relevant to an issue in the action.

Master Short was of the view that insurance coverage was relevant to the resolution of personal injury disputes, and ought to be disclosed as required by Rule 30.02. However, he was not convinced that the specifics of the policy were of any value in the case before him, leaving it open that there may be factual situations that may justify the disclosure of the policy provisions.

Evan Bawks, lawyer at Miller Thompson LLP and author of the original article concluded by pointing out that:

“Adverse cost insurance is a growing issue that defence counsel are seeing in more and more cases. Knowing if such a policy exists is crucial when considering whether the parties in a matter can reach a settlement before trial and acknowledging the increasing willingness of Plaintiffs to go to trial.”

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