by Debbie Orth & Michael Adamek
In recognizing an economic imbalance between individual plaintiffs and corporate defendants in personal injury litigation, where plaintiffs are inherently disadvantaged given their lack of financial resources to fund litigation, the development of Legal Expense Insurance is gaining momentum.
The British Columbia Law Institute (“BCLI”) published a paper on funding litigation which dedicated an entire chapter to such policies. The BCLI paper describes different types of coverage that may reimburse a plaintiff for numerous legal expenses, including their counsel’s fees and disbursements, retention of experts, court costs, and the opposing party’s costs.
In this article, we focus on one type of policy that is gaining prevalence in the case law: adverse cost policies (“ACPs”). We describe the various interests that flow from ACPs and how they may affect the on-going litigation. 
An ACP is fairly simple. A plaintiff or their counsel pays a premium to an ACP provider. In return, the provider agrees to indemnify for any adverse costs awarded against a plaintiff if the action fails. In other words, the ACP provider will pay a successful defendant’s costs. The particulars for how much may be paid, and for what time period of the dispute, depends on the coverage details.
The benefit a plaintiff acquires from an ACP is obvious: the ACP represents a protective veil shielding the plaintiff from the consequences of fighting a difficult or losing battle. This means a plaintiff can become less inclined to accept even a modest settlement offer and remain incentivized to push for trial in the hopes of greater recovery.
ACP providers are not oblivious to this. The provider is aware it now bears the risk of the action. Accordingly, the ACP will contain terms and conditions that restore some of the risk back to the plaintiff. For example, a policy may cease to guarantee coverage of a defendant’s costs if the plaintiff rejects a reasonable settlement offer that plaintiff’s counsel recommends accepting.
This begs the question: who is driving possible resolution? It is here that the Defendant may acquire a benefit from the ACP.
Desire for Details
A defendant can increase its negotiating power by learning the particular terms of a plaintiff’s ACP. Relevant questions that a defendant may want answered about the policy include:
- Who is the named insured under the ACP, the plaintiff or the law firm?
- Who are all the possible beneficiaries under the policy?
- What are the terms of the policy, including any terms of cancellation or suspension?
- What expenses does the policy cover?
- Does the policy provide coverage for security for costs?
- What are the policy limits?
A defendant may also want to obtain an undertaking from the plaintiff or plaintiff’s counsel to advise the defendant if there are any changes or alterations to the policy, including if the policy is discontinued or cancelled for any reason.
Such power gained from knowing the ACP’s particulars creates an inevitable conflict: the defendant will want a copy of the policy, while the plaintiff will deny its production. According to the case law, there appear to be two approaches through which a defendant may obtain a copy of the ACP:
- The Direct Approach: a motion for production under Rule 30.02 of the Rules of Civil Procedure; and
- The Indirect Approach: a motion for security for costs pursuant to Rule 56.01.
The Direct Approach
Through the direct approach in Ontario, a defendant effectively asks the plaintiff for the policy by relying on the Rules of Civil Procedure. Procedurally speaking, the dialogue takes place in the context of a motion for production pursuant to Rule 30.02. The topic was dealt with by the court in Fleming and Jamieson.
Rule 30.02 requires disclosure, on request, of any insurance policy under which the insurer may be liable to satisfy all or part of a judgment in an action, or indemnify or reimburse a party for money paid in satisfaction of all or part of the judgment. The only caveat is that no information about the policy is admissible as evidence unless it is relevant to an issue in the action.
Fleming confirms that ACPs fall within the scope of Rule 30.02. In that case, the plaintiff disclosed the existence and policy limit of an ACP. Following a defendant’s motion under Rule 30.02, the court ordered production of the entire policy. The court opined that the “relevancy” consideration has no bearing on the question of production, and only concerns the use of the policy as evidence.
However, Fleming is not an end-all decision. In Jamieson, the ACP was a blanket law firm policy that continued for an indeterminate period of time into the future covering the entire personal injury caseload of all clients in the firm. The plaintiff was not the named insured or beneficiary under the policy. The court denied production under Rule 30.02, noting that disclosure is only compellable against a “party” to the action, and that the law firm is not a “party” within the meaning of the Rules.
The Indirect Approach
A defendant may approach the topic indirectly, through a motion for security for costs pursuant to Rule 56.01. On such a motion, the defendant attempts to require the plaintiff to pay money into court as security to cover the defendant’s costs. The motion is brought where a plaintiff has no assets in the jurisdiction and is not impecunious, but appears to be in a position where it is unlikely to pay a successful defendant’s expenses.
In Shah, the ACP was not sufficient security because its terms and conditions were such that the ACP offered no protection for the defendant’s costs. For example, the policy terminated if the plaintiff’s counsel recommended accepting a settlement offer but the plaintiff failed to do so.
Frantz and Hontaru reached different conclusions because the defendant was able to be added as a beneficiary to the ACP, its legal fees would be paid in priority to other disbursements, and the defendant was entitled to notice if the policy cancelled at which time it could bring another motion under Rule 56.01.
Noteworthy, is that in each of these cases the ACP was produced to allow the parties and the court to examine its particulars to assess the sufficiency of coverage. This suggests that a motion pursuant to Rule 56.01 necessitates production if the plaintiff intends to rely on the ACP to defend against having to pay costs into court.
However, none of these decisions involved ACPs held by a firm as opposed to an individual plaintiff. It is unclear what effect that factual difference could have under this approach.
An ACP provides an undeniable benefit to a plaintiff which allows for the funding of the litigation. Conversely, the policy also may provide a defendant with a corresponding strategic benefit to explore. It will be interesting to watch case law unfold and litigation strategies develop as this issue continues to gain prevalence.
 British Columbia Law Institute Study Paper 9 (October 2017), Study Paper on Financing Litigation, Chapter 10: Legal Expense Insurance, 2017 CanLIIDocs 219.
 Case law on how ACPs affect litigation disputes is predominantly developing in Ontario. Accordingly, given the greater depth of Ontario cases that address the topic, this article is confined to consideration of Ontario decisions.
 R.R.O. 1990, Reg. 194: Rules of Civil Procedure under Courts of Justice Act, R.S.O. 1990, c. C.43.
 Fleming v. Brown, 2017 OJNSC 1430.
 Jamieson v. Kapashesit et al, 2017 ONSC 5784.
 Shah v. Loblaws Companies Limited, 2015 ONSC 5987.
 Frantz v. NB Thrilling Films 4 Inc. et al, 2017 ONSC 4637.
 Hontaru v. Doe, 2018 ONSC 1014.