Should cost protection insurance be mandatory?

As cost protection insurance becomes more common as part of litigation financing in Canada, lawyers have noted that, in the United Kingdom, lawyers are required to let commercial litigation clients know about its availability or they can be found negligent. Lawyers say it is already becoming good practice in Ontario to discuss cost protection insurance with clients.

Cost protection insurance, which is sometimes known as “after-the-event” insurance or “adverse-cost insurance policy,” can protect plaintiffs from cost awards if they lose their case. Some firms have policies that will cover their entire book of business, which ensures a lower premium for clients who opt for it in their cases. While the market for this insurance is still fairly new in Canada, it has been used longer in the U.K. — since 1999.

“Is this going to become something [that we have] to have a waiver from a client that it has been discussed, similar to how we discuss the risk of costs in general?” asks Charles Gluckstein, partner with Gluckstein Personal Injury Lawyers in Toronto.

“There’s a suggestion from the U.K. that it’s a trend that will only increase the onus on lawyers to be aware of what’s out there and to offer it to their clients at the appropriate times.”

Gluckstein says that, in the U.K., the code of conduct does have a positive obligation for the lawyer to discuss all available insurance options with their litigation clients and discuss whether it should be obtained.

“As costs and the risks of litigation go up, these products become more important to protect yourself,” he says.

Gluckstein says it’s important for lawyers to discuss the insurance with clients from the outset, as the cost of it will increase the longer they wait.

“We’ve also put in our retainer the availability of cost protection insurance and that it has been discussed,” says Gluckstein. “[Clients] know that’s a way to minimize costs. We put in an example of what it costs to get $100,000 protection, and there should be an ability to opt in or opt out of that coverage, but at least it’s been discussed and you’ve done your due diligence.”

Patricia Sim, managing lawyer with Grillo Barristers PC in Toronto, says cost protection insurance is becoming a standard of care in Ontario and it should be offered to all plaintiffs because of the prohibitive costs of litigation.

Sim says making it mandatory to offer cost protection insurance may dissuade smaller claims, which would please defendants. She says the cost of a premium may act as a disincentive for a small claim launched by plaintiffs, particularly once disbursements are considered.

Sim says that because most firms are moving toward blanket coverage for their whole book of business, making it mandatory to offer cost protection insurance to clients wouldn’t change the way lawyers do business. She adds that cost protection insurance levels the playing field for plaintiffs, taking away the disincentive of cost awards when going to trial.

“When there is an imbalance in resources between the parties, usually whatever settlement arises favours the party with the greater resources,” says Sim. “This insurance results in fairer settlements, because if you have a plaintiff that’s too scared to proceed to trial, they may well settle for something less than what their case is worth.”

Sim says this is essentially calling the bluff of insurance defence lawyers.

 “If they proceed with trial, both parties are forced to come to a settlement that reflects what the case is worth,” she says.

With the increasing availability of the insurance comes demands that it be produced as part of discovery in the litigation process, says Gluckstein.

“My advice would be don’t disclose [the cost protection policy] if you don’t have to,” says Gluckstein.

“Once the other side knows you have the cost protection, they know that there is a policy in place if they go to trial.”

Gluckstein says this could make for tougher negotiations between parties, with defence counsel knowing they can get their costs paid in the event that the plaintiff is being too difficult in their negotiating.

Sudevi Mukherjee-Gothi, a partner at Pallett Valo LLP in Toronto, who heads the firm’s insurance defence group, says that when cost protection insurance first became available in Canada, it was common for plaintiffs’ counsel to refuse to disclose whether they had even obtained the insurance, as there was still a “grey area” in the jurisprudence as to whether disclosure was required. She says that, nowadays, counsel will advise, but they won’t produce the policy.

Mukherjee-Gothi says the case law “right now is a bit murky,” but she relies on Fleming v. Brown, 2017 ONSC 1430. In the case, Justice A. Duncan Grace stated that the existence of a policy and its terms may play a role in how the action was conducted, even if only strategically, and that was enough to trigger the obligation to produce under Rule 30.02(3) of the Rules of Civil Procedure. Defence counsel was allowed to inspect the policy.

This decision has been moderated somewhat. Sim points to Jamieson v. Kapashesit et al. 2017 ONSC 5784.

In that case, Justice Dan Cornell ruled that while Fleming stated that individual policies could be turned over, the policy in this particular case belonged to the law firm, as it had taken out a blanket policy, not the plaintiff. As such, because the policy was not in the plaintiff’s possession, control or power, they had no ability to produce it.

Mukherjee-Gothi says it’s only fair that defence counsel be allowed to see the policy because under Rule 30.02(3), she is required to produce any policy that is responding to any claim, and she always produces it in her affidavit of documents.

“I don’t see why the opposite wouldn’t be required as well,” says Mukherjee-Gothi. “If I have a plaintiff in a case that has cost protection insurance, I should be entitled to know what type of a policy is going to be responding in that instance, so that I can take that into consideration. That’s clearly being taken into consideration by the plaintiff in their litigation against me.”

Mukherjee-Gothi says that because the likelihood of a plaintiff that has cost-protection insurance is significantly higher, that has to be taken into consideration when she is advising her client and making their calculation about litigation risk.

“If I know there is that type of insurance, that lets me know what kind of risk we have to push it to trial and how to advise my client,” says Mukherjee-Gothi. “It’s making sure that everybody has a clear understanding of all of the factors throughout litigation.”

Sim disputes this claim of fairness and says things such as what amount is fully covered and the terms of the policy that might trigger an exclusion are not relevant to the heads of damage at issue in the underlying case.

“If defence counsel has access to the complete policy, they can use it in ways that are not fair,” says Sim.

“If they have the details of just how much it is, perhaps they might try to raise the stakes to get over that limit and use that as an advantage.”