Breakthrough Costs Insurance Decision For Plaintiffs

Breakthrough Costs Insurance Decision for Plaintiffs- Armstrong v. Lakeridge 2017 ONSC 6565

One of the biggest obstacles facing personal injury plaintiffs in the pursuit of their claims is the very real threat of exposure to a large costs award against them if they are not successful in the lawsuit.  Typically, a judge will order the unsuccessful party to pay a portion of the victor’s legal costs. The rationale for this is that the unsuccessful party should not have put the other party to the expense of a trial and should have settled the claim.  This is fine if the plaintiff is successful. However, it works both ways. If a plaintiff either is not successful at trial or is awarded less by a jury than the defendant’s insurance company offered to pay in settlement, the plaintiff will typically owe the insurer a portion of its costs.  

This is clearly a biased system.  Insurers have vast resources and can absorb a costs award with ease.  On the other hand, injured plaintiffs often are out of work because of their injuries, and in any event, typically have limited funds available to pay a costs award.  Often, this imbalance of power allows a defense insurer to play hardball and offer unreasonably low settlement amounts, or nothing. In such cases, the pressure to abandon the claim increases the nearer to trial the lawsuit proceeds.

In response to this imbalance, a product known as Costs insurance has recently been made available to plaintiffs.  As you might imagine, it covers a plaintiff’s risk of paying costs at trial. If the plaintiff loses at trial or receives less than the defendant’s last settlement offer, the insurance will pay a costs award up to a specified limit (typically $100,000).  The plaintiff only owes a (typically small) percentage of the amount recovered at trial. If the plaintiff recovers nothing, it does not pay any amount to the Costs insurer. In some cases, a flat fee arrangement is worked out by the plaintiff’s lawyers. In both cases, this insurance alleviates a lot of the pressure to settle that plaintiffs face in seeking a fair settlement.

Once this type of insurance entered the mainstream, plaintiff lawyers began adding it to the list of expenses related to the lawsuit and insisting that the defendant cover the cost of purchasing it.  The first time this issue was heard in court, in Markovic v. Richards et al., 2015 ONSC 6983, Justice Milanetti refused to order payment by the defendant, stating:

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.

This underlined position seems reasonable on its surface, but demonstrates a strong pro-defense bias.  

Despite this decision, plaintiff’s lawyers continued to seek repayment of Costs insurance.  Following the Markovic decision, judges routinely rejected this attempt, until…

In Armstrong v. Lakeridge Resort Ltd., released late 2017, Justice Salmers was again presented with a plea for repayment of Costs insurance.  In this case, after a jury trial, the plaintiffs recovered damages of $68,250. They sought reimbursement for the amount owed to their Costs insurer following this successful result.  As expected, the defence lawyer argued that this amount should not be recovered following Markovic.  

Justice Salmers took the opposite approach, stating:

In this case, the costs of advancing even the claims on which the plaintiffs were successful were extremely large. Also, in general, even the strongest claim of a plaintiff may not be successful depending on how the evidence comes out and how it is perceived by a trier of fact. Without costs insurance, the fear of a very large adverse costs award would cause many plaintiffs of modest means to be afraid to pursue meritorious claims. It is in the interests of justice that plaintiffs be able to pursue meritorious claims without fear of a potentially devastating adverse costs award.

Therefore, he ordered the defendant to cover the Costs insurance amount as claimed.

This decision will have a profound positive impact for plaintiffs, at least in the short term.  Now that there are two contradictory decisions in play, it will ultimately be for the Court of Appeal or even Supreme Court of Canada to decide.  We can only hope that the higher Courts are as clear-sighted as Justice Salmers.

For more information on how Campisi LLP uses Cost insurance as part of our overall philosophy- “Clients First, Excellence Always”- or to discuss any aspect of your personal injury claim, please do not hesitate to put us to work for you.