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Ontario courts are in the process of considering the security and treatment of “after- the-event” legal cost indemnities and insurance. These products allow litigants to protect themselves from the risk of a cost order, giving them the security to proceed to trial. They can also be provided as a blanket policy for a law firm that needs protection for its disbursements. While still relatively new in Ontario, a view is emerging that there is a duty on lawyers to advise clients of the availability of this protection.

In the last few years, there has been some attention given to litigation cost insurance as an access to justice tool, with most products available as “before-the-event” (BTE) blanket coverage. There are now several companies in Ontario who are offering “after-the-event” (ATE) insurance or indemnities that people can purchase once a case has been instigated. Law firms can purchase it on behalf of clients and recover the cost from them later or maintain it as an expense for the benefit of the client, as a marketing exercise.

In other parts of the world, ATE insurance is a mature mainstream product, most notably in the United Kingdom. In Ontario, it has only entered the market in the last two or three years. In fact, there are two types of product — after-the-event insurance and adverse-cost indemnities.

Legal expense insurer DAS Canada offers such products and believes it has an upper hand in the embryonic market because it is a regulated insurance company, as opposed to other financial companies offering adverse-cost protection or settlement loans. “It’s a comfort knowing that insurance companies have huge requirements to have enough capital to cover all risks,” advises David Smagata, vice-president and chief legal officer of DAS Canada. His colleague, Nick Robson, manager, ATE & Special Initiatives, points out that the Trial Lawyers Association of British Columbia has placed some restrictions on the providers of settlement loans and cost-protection indemnities, and that the Ontario Trial Lawyers Association is drafting a code of conduct in relation to the use of indemnities.

With an ATE insurance policy, the policyholder is always the litigant. The firm can be delegated to accept certain risks to get standard coverage of $100,000, which can then be changed as litigation progresses. Smagata explains that it is not an intrusive product in terms of directing the litigation. “You don’t have to worry that someone’s going to come in and tell you how to run your case. It is not heavy-handed.”

Darryl Singer of Singer Barristers of Markham, Ont. has chosen to use the indemnity product from BridgePoint Indemnity Company. He has a blanket policy that covers every personal injury file he opens. “I pay $200 to cover up to $10,000 in disbursements with a rider that allows me to increase coverage to $50,000 without any review. If I decide that I am going to trial in a couple of weeks and the $50,000 is not enough, I can increase it to $100,000 or higher.” He knows of firms with a higher blanket policy. “My practice has a high volume of small files. Some firms have blanket coverage of $50,000 to $60,000.”

The indemnity covers the adverse costs, including defence legal fees and the plaintiff lawyers’ disbursements. It does not cover the plaintiff lawyer’s legal fees. John Rossos, chairman and CEO of BridgePoint, explains that because legal fees are on a contingency basis, in a downside case the court could say that you shouldn’t get a contingency fee because the lawyer has essentially borne no risk.

Rossos refers to the situation in the U.K. “In 1999, the Access to Justice Act mandated a situation that where ATE insurance, as it is known in the U.K., is purchased, a defendant had a duty to pay the premium. It then became ubiquitous in the legal community and evolved to be a standard of care. If counsel is not advising their clients that it is available, they are negligent.”

Rossos believes that a similar phenomenon is occurring here. “It is becoming the standard of care for personal injury lawyers launching a lawsuit to advise claimants of the products’ availability. If an unprotected client subsequently finds out about protection, the next question to the lawyer will be, ‘Why didn’t you advise me about it?’”

Rob Findlay, a Hamilton personal injury lawyer, agrees that there is a standard of care concern. “In our regulations, we are mandated to talk to clients about cost exposure. You’re certainly going to include this in that discussion. If it becomes routine enough in everyday practice and the client goes to trial and is hit with $100,000 costs, they may be looking for a pocket to recover from.”

Singer thinks the importance of the product weighs in at the negotiation stage. “After-the-event insurance has levelled the playing field for plaintiffs who might not otherwise be able to risk an adverse costs award by going to trial. Cases which would not settle at mediation because the plaintiff would be intimidated by potential costs consequences now stand their ground and get the case resolved. In addition, cases that would get dropped on the eve of trial by the plaintiff can now proceed to trial.”

Singer recalls that, in a typical scenario, before DAS and BridgePoint came on the scene, the insurer or the mediator or the judge would remind clients that they might win, but if they don’t, a two-week trial can cost $100,000. “The clients would fold like a pack of cards. This allows me as a lawyer to sit there, slap the certificate on the table, and say, ‘You don’t care if you lose and have to pay costs. Well, neither do we.’ Now the single biggest leverage they’ve got is off the table.
It has taken a major weapon away from the defence side.”

There are now several court decisions addressing the use of the products. Recently, a master ordered a plaintiff to purchase ATE insurance instead of paying into court, finding that the policy would provide sufficient security. There have also been several cases where a pre-existing policy has been raised as a defence to a security for costs motion, sometimes successfully and sometimes not.

The more vexed question is whether a successful plaintiff can claim the premium as a disbursement.Markovic v. Richards, rendered on Dec. 12, 2015 by the Ontario Superior Court of Justice, produced a finding that the premium paid for ATE is not payable by the insurer. James Greve of Camporese Sullivan Di Gregorio of Hamilton, Ont., who represented the insurer, says this is the first case in Canada to consider the issue, but he does not expect it to be the last. “My argument was that it is not consistent with the rules of civil procedure relating to the cost consequences of failing to accept offers to settle. It would insulate parties from that risk.”

Findlay, who represented the plaintiff, points out that the decision was not based on the representations of either party, which were minimal, and refers to the wrong product. He takes issue with the judge’s finding that the product was purchased as a voluntary option and did nothing to advance the litigation. He refers to the obligations imposed by the Automobile Insurance Rates Stability Act to try and affect resolution and encourage settlement. “How is it not consistent with that? If you have insurance, it will prolong efforts at resolution and make it more likely….”

Personal injury professionals have expressed much consternation of late about the drastic changes to the Insurance Act and the statutory accident benefits schedule. Paralegals, who for years have derived a nice living from accident-benefits work, are expressing worry about their livelihoods, as are the clinic owners, chiropractors, assessment companies, and, of course, the tort lawyers who all line up to take a piece of the personal injury pie.

Those discussions are focusing misguidedly on how the new personal injury playing field affects us. But lost in all of the concern is the important fact that victims of motor vehicle accidents have less opportunity for fair recovery today than ever before.

The provincial government’s focus for years has been to buy into the insurance industry’s rhetoric about how it could contain both high insurance premiums and skyrocketing legal costs if only it would help the companies stop all of the fraud. Yet the government’s response, which is to severely reduce available no-fault accident benefits and increase the tort deductible, is akin to bringing a bazooka to a pocket-knife fight.

This one-two punch of a government passing legislation that’s beneficial to the insurance industry at the same time as the companies make blanket corporate decisions to pay out less money to accident victims on the tort side leaves a gaping hole in consumer protection.

In fact, if the government really wanted to help accident victims, it could implement a consumer insurance bureau as is already the case in the Nordic countries. The consumer insurance bureau would have a mandate to assist consumers with regard to their rights and benefits after they have been in a motor vehicle accident and also, not incidentally, to act as a sort of special consumer ombudsperson to petition the Ontario government about insurance issues from the consumers’ perspective. A yearly surcharge of $1 per vehicle registered in Ontario could fund such a body.

So why hasn’t the Ontario government made such a decision on behalf of the Ontario electorate it represents? That same electorate pays insurance premiums from which the insurance companies fund the Insurance Bureau of Canada. The insurance bureau spends millions of those dollars a year to train insurance representatives on how to restrict payouts and, most significantly, lobby the Ontario government about insurance issues from the insurance industry’s perspective.

One of the authors of this article, Peter Cozzi, first presented the concept to the province about 10 years ago at a Financial Services Commission of Ontario bar dispute group meeting at which a government representative was present to hear the proposal. Nothing happened.

As plaintiff lawyers, we can only work to achieve results for our clients within the legal and regulatory framework that the government has provided. When the government circumscribes that framework to the point that thousands of worthy cases languish due to legislative changes, it’s time for it to invoke some corrective balancing.

Understandably, the insurance industry’s powerful lobby does not want to see legislative changes that would possibly put the plaintiff lawyers in the driver’s seat.

Admittedly, that might be too much of a correction. The idea proposed here for a consumer insurance
bureau that would educate the public, provide input to the government on consumers’ behalf, and possibly implement an internal regulatory regime to keep minor but deserving disputes out of court places the power in the hands of neither the insurers nor the lawyers but rather the consumers. In a province with one of the best consumer protection regimes in North America, that is a natural addition.

So will the Ontario government support consumers’ rights to proper representation in the motor vehicle insurance debate? In our view, the answer is unlikely given the Ontario government’s disinterest in the proposal 10 years ago and the current legislative climate that has leaned in favour of the insurance industry.

Do the province’s actions signal its disinterest in accident victims or is it that the significant revenue contribution from the HST charged on the millions of dollars paid by consumers in insurance premiums in conjunction with the taxes paid by those insurers and their tens of thousands of employees is the critical factor for a government concerned about fiscal responsibility?

Those factors are relevant to a provincial government concerned about revenue to offset a deficit, but the province’s actions surely do little to enhance fairness to the consumers it represents in the legislative process governing insurance.

To correct that by creating a consumer insurance bureau will cost the Ontario government very little and go a long way in protecting the public.

While the monetary difference between old and new prejudgment interest rate rules isn’t substantial, the overall issue for insurance companies is, Toronto personal injury lawyerDarryl Singer tells Law Times.

The Ontario Court of Appeal is currently considering whether a rule that replaced the former prejudgment interest rate of five per cent with the lower current bank rate is retroactive, reports Law Times.

The legal publication says in recent months, Ontario courts have come down on either side of the issue of prejudgment interest following changes in legislation that replaced the former rate of five per cent with the lower current bank rate.

“The issue stems from an amendment on Jan. 1, 2015, that changed the amount of prejudgment interest for some cases,” says the article.

“One decision earlier this year, Cirillo v. Rizzo, found the change to be retroactive while another one, El-Khodr v. Lackie, later found that earlier ruling to be wrong. The latter case is under appeal,” reports Law Times.

Singer tells Law Times he agrees with El-Khodr, but he understands the reasoning in Cirillo.

“It can’t possibly be fair for them to, many years later, take advantage of the legislative change,” says Singer. “It’s an important issue for the personal injury bar.”

The plaintiff personal injury business is more competitive than ever. Thus, when meeting with a potential personal injury client for the first time, you may well be tempted to make representations as to what you think the case is worth or how quickly you can settle it. I can only assume from the number of times I hear potential clients telling me about their consultations with other firms that this desire to make promises to the clients is rampant.

I am urging you to resist the temptation to make such comments, as your clients will surely be disappointed at the end of the day, which will lead to other headaches (fee disputes, Law Society complaints, negative social media reviews, etc.)

The two most common questions I am asked by potential new personal injury clients (and my answers) are:

1. How much money is my case worth? (I don’t know).
2. How long will it take until we settle? (I don’t know).

You may be tempted, knowing the client is shopping around, to land the client then and there by telling them what they want to hear, or what you may actually believe to be the case. I will tell you, however, that you would be wrong to do so. This is simply because at the initial client interview it is impossible to know.

At the outset of the case, you will only have the client’s perspective. You will not have yet heard the position of the adjuster for the target insurer. You will not have reviewed the medical records of your client’s pre- or post-accident treatment. You will not have yet had the benefit of their income tax returns or other supporting documentation.

Oftentimes, at the time the client signs your retainer, you may not even have the police report of the accident available. And as in all litigation, what your client tells you is less important than what the actual documents prove.

There are many factors that go into determining the value of a personal injury case. Quantifying damages in a personal injury case is more art than science; oftentimes abstract art at that.

Here are just some of the factors at play in determining the value of your client’s lawsuit:

• The nature and extent of the injuries. Under the Insurance Act in Ontario, not all injuries are compensable. Recent case law from the Superior Court of Justice indicates that the bar to meet the statutory threshold is on an upward trend. This is good news for insurers, but bad news for you. If your potential client shows up at your office and thinks his sore neck and back pain is worth six figures, and you either by representation or omission, allow him to leave thinking he might get something near what he has in mind (remember that what is in his mind is not grounded in the realities of the law but rather his emotion and sense of moral certainty), you are setting the stage for a disgruntled client before the case is even underway.
• What your client’s own medical practitioners write in their notes about her injuries. For example, your client may tell you that she is in constant pain, but her family doctor may use words such as “minor” in her clinical notes or, worse, treat the client’s injuries dismissively. This will definitely hurt your case.
• How often your client attends for treatment. Many clients stop going to doctors and rehab clinics after a few months either because (i) the treatments are no longer effective; (ii) they simply do not have time; or (iii) they can no longer afford to cover the out-of-pocket cost of non-OHIP covered treatments, such as physio and massage therapy. Their failure to continue treatments for whatever reason may impact what an insurer has to pay at a later stage in the proceeding. Yet, whether or not they continue to attend and at what frequency are factors out of your control.
• If your client has a potential claim for lost income, the amounts on which they filed and paid tax in previous years or can actually prove through source documents. This is especially acute if they are in the service industry, as a large portion of their real income is derived from tips, yet their income tax returns rarely reflect this; similarly with self-employed small business owners (or those who work in “cash” businesses”) where true income loss is significantly more than would appear from the pre-accident income tax returns.
• The statutory deductible. The Insurance Act mandates a $30,000 deductible on general damages on motor-vehicle-accident-related personal injury cases. This amount is actually increased north of $36,000 as of Aug. 1, 2015). Since the majority of soft tissue injury cases are worth less than $75,000 for the pain and suffering component, you can see how this deductible has a very real impact, often to the point of deserving parties obtaining nothing more than a negligible amount. Moreover, clients generally do not understand this.
• The client’s own evidence at examination for discovery or trial or in statements given to doctors or insurers, which experienced (jaded) personal injury lawyers know is often very different than what the client has told us at the time we are retained.

Also keep in mind that what you think of as the value of the case is usually the amount of the cheque the insurer will write, while the client is really only concerned with the net in their pocket. From whatever amount you obtain, you will deduct legal fees of about 30-35 per cent (plus HST). In addition, disbursements incurred by you are over and above the fees. It is not unusual for me to incur $5,000 for a case worth only $20,000. Thus there is often a significant gap between the amount of the settlement and the actual dollars going into the client’s jeans.

Then there is what I call the wild cards. These have nothing to do with your client’s injuries, the state of the law, or for that matter your legal acumen.

1. The target insurance company. Some insurance companies have taken a very hard line on all soft tissue injury cases that do not have significant provable lost income attributable to the injuries. I have been told more than once in mediations with a certain insurer that they “would rather spend $100,000 on legal fees before paying a plaintiff $10,000.” They have been successfully following through with this threat for several years now. The days of insurers paying a little to save a lot are gone.
2. The particular adjuster who is responsible for deciding how to handle the file. Even “good” insurance companies, who settle early and often, employ certain adjusters who take a more aggressive approach.

As for the length of time, no matter how fast your office works to move a case forward, you will inevitably be stymied by the bureaucracy of a large insurance company, lawyer’s schedules, your own schedule if you are running a high-volume practice, not to mention the inherent systemic delays of our court system. Accordingly, you should not suggest a time frame in which a case may settle.

For all those reasons, it is almost impossible to give a client an accurate picture of how their case will shake out when you first meet. As such, resist the urge to lure clients with promises of golden tickets and the chocolate factory tours. Instead, focus on empathizing with your client’s situation while leaving them with the indelible impression that you have the knowledge, skills, and experience to give them the right advice at the right time.

If personal injury law is not within your areas of expertise and experience, you are best to refer the file to a lawyer who does have that experience. If you do not regularly practise in personal injury law, you likely lack the requisite knowledge to properly advise the client, understand the process (which has its own conventions and rules of thumb amongst the bar), or properly assess the case.

Further, a personal injury lawyer’s ability to get small- to mid-size cases settled is predicated as much on his or her relationships with the adjusters and defence lawyers as with that lawyer’s skills. At the end of the day, this is a people-driven industry and reputation counts. Being an unknown entity is a further disservice to your clients. You also may not understand the lay of the land at various insurers and how they operate, knowledge integral to a lawyer’s ability to take on the right files and obtain a decent result for the client.

Fortunately, in personal injury cases, there is incentive for non-injury lawyers to refer to experienced injury lawyers. Referral fees are the norm. So save yourself and do the right thing for your client by referring the file on. You will be rewarded at the end of the day without having done the hard work or laying out the disbursements.

And for those of you who are like me and handle large volumes of personal injury files, there really is enough business to go around. There is no need to try and get business in the door by making promises you cannot live up to, and potentially open the door for negligence claims and Law Society investigations.

When I teach practice management courses to lawyers and law students, I always say that the law part of being a lawyer is easy. If you can get clients in the door, and manage their expectations, you’re 80 per cent of the way home. The initial client interview is when you set the tone for your client’s expectations. I would rather have a new intake walk out the door than get their signature on the retainer only by promising them what they want to hear.