The law with respect to legal costs insurance continues to develop as this insurance product is being more widely purchased in personal injury litigation. The recent decision in Clubine v. Paniagua, 2018 BCSC 1076 is of significance as the court found that the existence of legal costs insurance purchased by the plaintiff was a factor to be considered in awarding costs to a defendant.
Legal costs insurance can be purchased by claimants in personal injury actions as a means of offsetting potential costs of ligation, including costs awarded for failure to beat a settlement offer that was not accepted. In British Columbia, Rule 9-1 of the Supreme Court Civil Rules permits the court to order that the plaintiff pay the defendant's legal costs from the date an offer was made until the end of trial. Legal costs insurance has potential to affect the settlement process since the risk of costs consequences under the Rules has been an incentive for claimants to accept reasonable settlement offers. This raises concerns from a defence perspective, since claimants with insurance may have less incentive to settle and may be more inclined to pursue risky or unnecessary litigation.
Clubline was a personal injury action arising from a motor vehicle accident in which the defendant admitted liability and the only issue between the parties was damages. The defendant made several settlement offers, including a final formal offer of $90,000 which was open for acceptance until the eve of trial. The plaintiff declined all of the offers. After a seven day trial, the plaintiff was awarded $77,224.32 in damages. As the successful party in the action, the plaintiff was awarded costs as a matter of right.
The defendant subsequently applied for an order requiring the plaintiff to pay the defendant's costs and disbursements from the date of the formal offer through to the end of the trial. During the application, it was disclosed that the plaintiff had a legal costs insurance policy that would cover the defendant's disbursements and costs from the date of the offer, if such costs were awarded. The defendant submitted that the legal costs insurance policy had undermined the intent of Rule 9-1 by allowing the plaintiff to avoid the punitive consequences of the rule, ignore reasonable offers, and take chances at trial with impunity.
The court agreed that, in the circumstances, the plaintiff's policy had the effect of allowing a doubtful case to proceed through trial without risk of costs consequences. The court found that the insurance policy weighed strongly in favor of the defendant's application and awarded costs to the defendant.
Clubline does not remove the potential for legal costs insurance to affect the settlement process, but it may provide defendants with an avenue to recoup legal costs incurred if a claimant acts unreasonably. Canadian courts have held that claimants must disclose the existence of legal costs insurance policies.
Our Retail Case Updates are intended to assist you in staying current with new case law and emerging legal issues in this area. We hope you find this update useful. We welcome feedback and encourage you to contact us if you would like more details about the update, to provide general comments, or to suggest topics or cases of interest.