Clubine v. Paniagua [2018 CarswellBC 1798 (B.C. S.C.)] examines the effect of “After The Event Insurance”, or “Adverse Costs Insurance” on costs awards in British Columbia. ATE insurance is coverage purchased for the specific purpose of indemnifying the insured against expenses related to litigation itself. Often the policies are purchased after the event that is the subject of the litigation (such as an automobile accident) has occurred.
The phenomenon is relatively recent in Canada and relevant caselaw goes back only a few years. The cases as a whole follow the same timeline as the course of a civil action, in that the earliest cases generally consider preliminary matters, and usually only more recent judgments consider final costs issues. In the 2015 case Alary v. Brown [2015 CarswellOnt 6949 (Ont. S.C.J.)], the plaintiff began proceedings against a hotel after being assaulted on its premises, and purchased an ATE policy with an upper limit of $100,000. The plaintiff felt that the policy should insulate him against the security for costs the defendant sought. Smith J. found the ATE insurance was “not equivalent or an adequate substitute for the payment of security into Court, but it is a factor to be considered.”. The policy was specifically referred to as a factor in the case’s final disposition. In Abu-Hmaid v. Napar [2016 CarswellOnt 6769 (Ont. S.C.J.)], the Ontario Superior Court of Justice considered such policies in the context of disclosure. The Court found that an ATE policy was a relevant policy subject to disclosure under Rule 30.02 (3) of the Ontario Rules of Civil Procedure. In the specific case, the carrier and details of the policy were not required to be disclosed.
Recently, some cases have considered the effect of ATE policies on cost awards. Quinlan J. considered the issue of ATE policies as recoverable disbursements in Little v. Floyd Sinton Limited [2018 CarswellOnt 8407 (Ont. S.C.J.)]. Noting that conflicting caselaw existed on the topic, the Court found that the insurance did not advance the course of litigation, and that the fee paid for the policy was not a proper disbursement. In May of 2018, in Canfield v. Brockville Ontario Speedway [2018 CarswellOnt 8492 (Ont S.C.J.)] Mew J. reached a similar conclusion regarding costs themselves. The successful plaintiff was entitled to costs in a personal injury action. The Court noted the earlier cases that denied ATE policy fees as disbursements, and concluded that the existence of the plaintiff’s policy would not affect the cost determination overall: “neither the existence of this coverage nor the amount of coverage obtained have any bearing whatsoever upon an assessment or fixing of costs.”
This is not the approach taken by the British Columbia Supreme Court in Clubine. As in other cases, the plaintiff suffered a personal injury and purchased an insurance policy against the expenses of litigation. The plaintiff was successful but the defendant had made offers to settle it claimed that the plaintiff should have accepted. Watchuk J. agreed and awarded only pre-trial costs to the plaintiff, while the defendant was entitled to the costs of the trial. The fact that the plaintiff had ATE insurance influenced the costs decision, as the plaintiff was in a position where he could resist settlement offers:
The defendant submits that the ATE insurance effectively undermines the intent of the offer to settle rule. It allows a plaintiff to avoid the punitive costs consequences of the rule, ignore reasonable offers to settle, and with impunity take their chance at trial. The winnowing function of the costs rules is obviated by ATE insurance; doubtful cases can proceed through litigation without risk of adverse costs consequences. I conclude in this case that this insurance had such an effect.
The ATE insurance in this case strongly weighs in favour of the defendant's costs application.
As in Alary, while the policy was relevant and a matter which affected the result, its quantitative effects are not explicitly set out. It may be tempting to try reconcile the two cases on the ground that Clubine deals with an offer to settle which the policyholder should have accepted, while Canfield (where the defendant’s final offer was a “mere nuisance”) applies to costs issues in a more general sense. However, Watchuk J.’s comments are still sensible when applied to most aspects of costs determinations, and it is difficult to escape the conclusion that the British Columbia case comes to the opposite result from the Ontario one.
Some cases have raised the possibility that ATE insurance can increase access to justice for purchasers. In Clubine, it was found that a policy could lead the insured to make decisions at odds with facilitating justice. In an abstract, generalized sense, ATE policies act in a manner similar to a costs regime itself – an element of fairness is introduced into proceedings, at the expense of extra time and additional complexity. ATE insurance, however, weighs this balance more towards the “complexity” end of the scale. Furthermore, entirely new proceedings between ATE insurer and policy holder could be instituted based on costs decisions, which themselves are hearings usually held at the end of the underlying dispute. One of the reasons that the Court in Alary was reluctant to consider ATE policies was due to the numerous exceptions that could affect coverage, and would require examination of the conduct of the action itself – such as not accepting counsel advice on an offer to settle or changing counsel against the wishes of the ATE insurer. (See also Daigneault v. Canjet [2016 CarswellOnt 105 (Ont. S.C.J.)], where the exclusions were “many” and often “subjective”). The concerns regarding ATE agreements set out in Clubine are valid. But if they are widely applied to cost decisions already subject to careful scrutiny by ATE policies themselves, they could have unintended consequences.