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NOT ALL THE ATE POLICIES ARE THE SAME

In a Ruling on Costs, by Justice Turnbull, released January 23, 2020, the court dealt with an After the Event (ATE) legal expense insurance policy and defence counsel’s submission that plaintiff’s counsel should pay the costs of the action, personally.

In this MVA action, after a 21-day trial, the plaintiff was awarded $10,000 for general damages only. The damages did not exceed the statutory “threshold” resulting in the plaintiff recovering nothing.

The plaintiff had obtained a standard blended ATE insurance policy, which covered adverse costs and/or plaintiff counsel’s disbursements, with a policy limit of $100,000. This was a policy that named the plaintiff and plaintiff counsel’s law firm as the insured, as opposed to just naming the plaintiff’s lawyer/law firm, like those issued by Legal Insure Services Canada (LISC). As such, there was an obligation to disclose the existence of the policy and its terms – LISC policies do not have to be disclosed as they insure the lawyer or law firm and not the plaintiff. (See Jamieson v. Kapashesit 2017 ONSC 5784).

The defence was aware of the policy and its terms. The trial judge noted that “the defendant made a business decision to play hardball and pay nothing at all.” This decision was no doubt driven by the belief that if they were successful at trial, they would be able to recover their costs from the ATE policy. At the end of the trial, the defence sought costs against the plaintiff and his counsel, personally, in the sum of $263,499.95. The court dismissed the defence motion to have plaintiff’s counsel personally pay the costs of the action.

The ATE insurance policy was suspended by the insurer just 5 days before the anticipated commencement of trial. A representative of the insurer was ordered to appear before the court and provide information relating to the suspension of the policy. The Vice President and General Counsel of the broker of the ATE policy attended before the trial judge. This was Nicholas Robson of JusticeRisk Solutions. He deposed that the policy required the insured to “always provide us and your lawyer with information relating to your legal proceeding that is true and complete to the best of your knowledge and belief.” This witness indicated that the insurer became aware of the information relied upon to suspend the policy just 5 days before trial, as a result of communication from plaintiff’s counsel. He agreed that “the information related to the conduct of the insured and violated the spirit of the policy.”

Justice Turnbull noted
that the ATE policy provided:

“If your policy is suspended for any reason, cover will cease from the date of suspension onwards,
however all cover will remain for the period up to the date of suspension.”

The court noted that the 11th hour suspension of the ATE policy left the plaintiff personally exposed to the full costs of the trial. It did not explain the full reason for the suspension or how the “spirit of the policy” was violated. Justice Turnbull wrote that the suspension “… was not due to a unilateral act of the plaintiff or his lawyer to influence the defendant insurer to agree to pay some compensation to the plaintiff because his third party costs coverage was no longer in effect.”

The defence costs were assessed at $189,298.68. One of the issues becomes how the proceeds of this policy, up to the date of suspension, should be apportioned between defendant’s costs and plaintiff counsel’s disbursements. The court did not address this. The issue that emerged during Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274 cannot arise under a LISC policy as the proceeds of a lawyer-held ATE policy belong to only the lawyer. Thus it is the lawyer who has the sole discretion on how the proceeds are to be allocated – i.e. who gets priority to the proceeds.

In order to avoid these issues, LISC only issues ATE policies to plaintiff personal injury lawyers and law firms. It does not insure plaintiffs. Many law firms are now recognizing the benefit of such policies.

Justice Turnbull does not appear to have delved into the reason for the suspension of the policy on the eve of trial. Was it as a result of what most, if not all, plaintiffowned ATE policies state, namely that the plaintiff’s case must have at least a 51% chance of success? This puts the ATE insurer in the driver’s seat and requires plaintiff’s counsel to report to that insurer in the event the 51% threshold cannot be met. This in turn exposes the plaintiff to being suddenly and without warning, left with no continuing cover, often at the time cover is most needed. It also permits these insurers to deny claims, thereby leaving plaintiffs fully exposed.

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