Whether you win or lose, litigation can be an expensive endeavour. While some of those costs may ultimately be recovered from the other party in the course of the litigation, recent case law suggests that the premiums paid for After The Event (“ATE”) insurance (also known as adverse costs protection insurance) are unrecoverable.
As I explained in my earlier article Recoverable disbursements: Who should pay for the plaintiff’s litigation funding costs?, a plaintiff or their counsel can purchase ATE insurance products to protect against an unfavourable outcome at trial in the form of an adverse costs award. A premium is paid by the plaintiff or their counsel for this type of coverage. In a recent spate of cases, the courts have addressed the issue of whether this premium is or is not a recoverable disbursement.
The recoverability of this premium appears to have been first addressed by the Ontario court in Markovic v Richards. In Markovic, the Court held the premium for ATE insurance was not a recoverable disbursement. Importantly, the reasoning in Markovic was recently relied on by the court in the following three cases to find that such premiums are not a recoverable disbursement.
In Foster v Durkin, the plaintiff successfully brought a claim in connection with a motor vehicle accident. The Court in declined the plaintiff’s request to recover as a disbursement the fee paid to DAS Insurance (for ATE insurance). In doing so, the Court expressly relied on the following reasoning of the Court in Markovic:
While it is clearly the plaintiff's prerogative to obtain ATE insurance, I do not accept that such premium should be reimbursed by the defendants as a compensable disbursement. Such disbursements have not, as far as I am aware, ever been entertained in Canada and have certainly not been the subject of legislative reform as was the case in the UK. I can think of no policy reason that such should be compensated as a taxable disbursement. 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. Moreover, as I understand it, ATE insurance is offered by DAS Canada, a full service legal expense insurer that is recognized by the Canadian Bar Association. DAS provides legal expense coverage that can be purchased by individuals who need to pursue legal action, covering disbursements and adversary costs in the event of an unsuccessful case. It appears that the premium is only payable if the case is successful.
Similarly, in Valentine v Rodriguez-Elizalde, the plaintiff successfully defended a motion brought by the defendant in the context of a motor vehicle accident. Having purchased ATE insurance, the plaintiff sought to recover the premium for the policy as a disbursement. However, like in Markovic, Justice Firestone found that ATE insurance was “not necessary for the plaintiff to advance or develop the various heads of damages claimed in this action” and accordingly, was not an assessable disbursement.
A similar stance was also taken by the British Columbia court in Wynia v Soviskov. The decision in Wynia arose from the assessment of the plaintiff’s costs. One of the issues raised in the decision was what the court described as the “novel issue” of whether the cost of a form of adverse costs insurance was a recoverable disbursement. The defendants relied on the decision Markovic to support their objection to the recoverability of the disbursement. Like in Ontario, the Court highlighted that under the Supreme Court Civil Rules, BC Reg 168/2009 (the equivalent to the Ontario Rules of Civil Procedure) to be recoverable the disbursement must have been necessarily or properly incurred in the conduct of the proceeding. Ultimately, the Court agreed with the defendant that:
[t]he cost of insurance coverage is not a proper or necessary disbursement incurred in the conduct of the proceeding. No doubt it provides a measure of financial comfort to the plaintiff, however, it does not arise from the exigencies of the proceeding and relate directly to the direction, management, or control of the litigation used to prove a claim against the defendants. Accordingly, the cost of the insurance coverage is disallowed.
The decisions in Foster, Valentine and Wynia have continued to build a consensus in the case law against the recoverability of premiums for ATE insurance as a disbursement in litigation. Given the stance taken by the court to date on this issue, defendants should be wary of paying for such a cost as part of a settlement when it would not otherwise be recoverable after trial. Conversely, plaintiff should be made aware that they will likely be on the hook to pay for having “peace of mind” in advancing their claim.