Retail Case Update: “After the Event Insurance” not a Recoverable Disbursement

Legal costs insurance can be purchased by claimants in personal injury actions as a means of offsetting potential costs of ligation. The law with respect to legal costs insurance continues to develop as this insurance product is being more widely purchased in personal injury litigation. A recent decision was released that confirmed a plaintiff’s litigation insurance is not allowed as a disbursement (see Belknap v. Hicks, 2023 BCSC 172, link here).

In this case, the plaintiff sought significant damages which she claimed arose from negligence in the way the defendant, an orthopedic surgeon, dealt with her broken femur. At some time during the litigation, the plaintiff purchased “After the Event” (“ATE”) costs insurance. Such insurance provides payment, to the level of the insurance purchased, of any costs award made against the purchaser in their litigation. It also provides payment, to that same ceiling, for the plaintiff’s own disbursements incurred in pursuing the litigation.

When purchasing ATE, the premium is deferred and is only payable if the purchaser/litigant is successful. The premium increases as the litigation progresses and the related risk to the policy holder, and thus the insurer, increases. If the purchaser is not successful, no premium is paid, and the insurer covers the costs order and disbursements to the extent of the policy limits.

Following trial, the plaintiff was awarded damages of $55,000. The parties returned before the Honourable Mr. Justice Caldwell on the issue of costs. The plaintiff sought an order that ATE be allowed as a disbursement, while the defendant took the position that ATE is not recognized as a proper disbursement in British Columbia.

In considering this issue, Mr. Justice Caldwell found this type of recovery has been the subject of legislative reform in the United Kingdom and may be recoverable in certain Canadian provinces, including Ontario, although the authorities are not unanimous. Mr. Justice Caldwell raised concerns that allowing risk premiums to form part of cost awards would distort the incentive structure built into a costs award regime, which may “incline defendants with meritorious defences to settle” due to the increased potential for a higher cost award…this increased tendency to settle brings with it an undesirable corollary effect — it would encourage plaintiffs to pursue the least meritorious claims”

Ultimately, Mr. Justice Caldwell held that ATE insurance was not allowed as a disbursement.