Many lawyers in Ottawa offer contingency fee agreements which provide that there are “no fees unless you win”. However, what exactly are the risks if you lose your case? In Ontario, the party that loses a lawsuit in most cases is required to pay the costs and disbursements of the successful party.
Adverse cost insurance is coverage that mitigates against the risk of possible exposure to pay costs and disbursements if you lose your case.
What Exactly are Costs and Disbursements?
Legal costs are lawyers’ fees. Disbursements are expenses incurred pursuing a claim, such as the fees for medical experts, court filing fees, etc.
If a car accident, slip and fall claim or long term disability claim goes to trial, legal fees can easily amount to tens or even hundreds of thousands of dollars. If an injured party loses his or her claim, they must pay not only their own disbursements, but will probably also face a court Order requiring them to pay thousands of dollars to the defendant for costs and disbursements. This leaves many plaintiffs feeling vulnerable as they head toward a trial; because if they do not win or accept the defendant’s offer, they could end up losing their home or go bankrupt, as a result of a court Order requiring them to pay the insurance company’s fees and disbursements.
To alleviate exposure and concerns related to awards of costs and disbursements, many law firms recommend that personal injury and LTD clients obtain adverse cost insurance.
Adverse Cost Insurance Explained
Adverse cost insurance is a form of insurance that provides protection against awards of costs and disbursements. In short, if a court orders an injured or disabled party to pay the legal costs and disbursements of the defendant/insurance company, then the adverse cost insurance pays those cost awards. Adverse cost insurance can also be used to pay your own expenses (for your own expert’s fees and other disbursements) if you lose your case.
Typically, premiums to obtain adverse cost insurance range from between $1,500 and $2,500, for coverage ranging from $100,000 to $200,000. The premiums are only paid following the successful resolution of your claim.
Advantages of Having Adverse Cost Insurance
When considering whether to go to trial, without adverse cost insurance, plaintiffs are at a significant disadvantage. For an insurance company that makes billions of dollars in profits each year, a cost award of $100,000 is a small drop in a big pond. For the average person, an order to pay $100,000.00 to an insurance company could be devastating. Adverse cost insurance serves to level the playing field. It also lets the insurance company know that you will not be bullied into settlement by talk of the risks of facing an adverse cost award.
Although adverse cost insurance is an added expense in the litigation, recent Ontario court decisions such as Stewart v. Wood et al. 2019 ONSC 3931 , have held that this expense is a disbursement that the insurance company/defendant must pay to a plaintiff who wins their case. In other words, it ends up costing nothing to the plaintiff.
Disadvantages to Adverse Cost Insurance
There are two possible disadvantages to obtaining adverse cost insurance. The first relates to giving the defendant/insurance company a motive to push forward with a claim when it might otherwise have agreed to settle. The second relates to the actual cost of obtaining the insurance.
In a claim where a plaintiff makes an excellent recovery after starting his or her lawsuit, his or her claim may be significantly devalued. This is particularly true in a motor vehicle accident claim where no damages are paid for pain and suffering unless the impairments are permanent. In most of these sorts of claims, historically, defendants agreed to “without costs” dismissals late in the game. In other words, the defendant would consent to a discontinuance of the lawsuit, without any damages being paid and with neither side paying legal costs.
Anecdotally, some lawyers have suggested that insurers, when they find out a plaintiff has adverse cost insurance, will be less inclined to settle on a without costs basis. Rather, they will insist on proceeding to trial, in order that they may be able to have their costs paid by the adverse cost insurer.
A counter to this argument is that a plaintiff’s adverse cost insurance can be used first to pay his or her own disbursements. The defendant will only get what is left over. As such, successfully running a trial for the defendant will result in a cost award of less than full indemnity, which itself may not be fully satisfied by adverse cost insurance. Under the circumstances, it is hard to see an insurer deciding that proceeding to trial would be in its best economic interest.
A second possible disadvantage to obtaining adverse cost insurance is the cost of the premium. As outlined above, recent cases have held that the premium is a disbursement that the insurance company/defendant must pay.
In reality however, upwards of 98% of cases settle before trial. When a settlement is being negotiated and the parties first exchange offers, they usually itemize all of the damages and disbursements being claimed. However, by the time of the final round of offers, parties almost always shift to lump sum offers, without any breakdown. Therefore, it is hard to really say if the premium expense is actually being added to the final number or if this additional expense is coming directly out of the plaintiff’s damage award.
Should You Get Adverse Cost Insurance?
Overall, the benefits of adverse cost insurance outweigh the negatives. The peace of mind, additional leverage and access to funds to pay costs following an unsuccessful trial is more valuable than the theoretical idea that a defendant could possibly push forward to trial on a losing case for the plaintiff. Likewise, although the premium of the insurance will have to be paid on settlement, ultimately this is an expense that is well worth it if you are advancing a personal injury or long term disability claim. What better way to even the odds against a billion dollar insurance company, than to have your own insurance company on your side.
If you have questions about adverse costs insurance, or are considering an injury or LTD claim in Ottawa or the surrounding areas, contact the lawyers at SG Injury Law for a free consultation: