Clients who have suffered less drastic injuries (“soft tissue” injuries, simple orthopedic injuries, and so on) are the most common victims of insurer intimidation. In these cases, insurers will claim that the client will not recover anything, or will achieve limited recovery, lower than the amount being offered. When this occurs, they claim, the court will order a costs sanction against the client. Therefore it is in the client’s interest to accept the often paltry amounts being offered in exchange for a full and final release.
One reason insurers have been able to do this originates in the Insurance Act, which provides two impediments to pursuing litigation, instituted in order to appease insurers. The first is the creation of a statutory threshold of “permanent, serious impairment of an important physical, mental or psychological function” which must be met in order to recover damages from a third party. The second is the establishment of a $30,000 deductible on damages for pain and suffering on awards under $100,000. In claims where there is little or no income loss, the majority of the recovery is often based on a claim for pain and suffering.
The insurers argue that the client will not meet the threshold, and therefore will be barred from recovering, or that the pain and suffering award will be at or near $30,000, which will be wiped out by the deductible. Therefore, they conclude, the client is best advised to accept a small settlement which acknowledges their pain and suffering, rather than fighting for several years to receive nothing.
Legal cost (or litigation) insurance is purchased in order to neutralize this argument from the insurer. In many cases, the likelihood of success at trial on the issue of liability will be high (for example, in a rear-end collision). This provides a strong incentive to the defendant insurer to negotiate a settlement. If the client can proceed to trial to establish the reasonable range of damages, secure in the knowledge that a costs award against her will be covered, the insurer will be motivated to provide a more realistic settlement offer.
While this product is not always needed (in cases where it is obvious that the damages will be significant, for example), we do recognize its value in certain situations, and are comfortable recommending it to these clients.