Adverse cost or “after the event” (“ATE”) insurance is a relatively new coverage which is quickly gaining popularity among Plaintiffs in Canada. ATE insurance is an insurance policy which is purchased after a dispute arises and covers costs and disbursements. Depending on the policy, ATE insurance will cover the Plaintiff’s own costs and disbursements, as well as any costs awarded against the Plaintiff if they are unsuccessful at trial.
In the past few years, courts have considered ATE insurance in various capacities, including whether it is appropriate to order security for costs, whether the ATE insurance premium is properly recovered as a disbursement, and whether the ATE policy needs to be disclosed and/or produced. Recently, the BC Supreme Court considered whether ATE insurance is a relevant factor to consider in making a cost award against a successful party, pursuant to Rule 14-1.
In Clubine v. Paniagua, 2018 BCSC 1076, the Plaintiff was injured in a motor vehicle accident and was awarded a total of $77,224 in damages at trial. The Defendants had made offers to settle for $84,848, plus costs and disbursements, one month before trial and for $94,848, plus costs and disbursements, two weeks before trial. The Defendants therefore argued that the Plaintiff was entitled to his costs until the date of the final offer and that the Defendants should be awarded their costs thereafter.
The Court looked at Rules 9-1(5) and specifically the factors to be considered as set out in Rule 9-1(6) when making an order for costs against a successful party. The Court noted that whether a party is insured is not relevant in determining costs unless the insured party wields its financial strength in an untoward manner. However, in considering other factors, the Court noted that the Plaintiff had obtained ATE insurance prior to trial and that the ATE insurance effectively undermined the intent of Rule 9-1 by allowing the Plaintiff to avoid the punitive cost consequences of the Rule by ignoring reasonable offers to settle and taking his chances at trial “with impunity”.
The Court concluded that the fact the Plaintiff had ATE insurance was a factor which weighed against an order of “costs in the cause” as the Plaintiff’s failure to accept reasonable offers to settle should have cost consequences. In this case, the fact the Plaintiff had ATE insurance led the Court to find that the Plaintiff was only entitled to his pre-trial costs and that the Defendants were entitled to their costs and disbursements through the trial. The Court noted that the Plaintiff’s failure to accept reasonable offers to settle should have cost consequences and that the presence of ATE insurance was a factor further weighing against costs following the event.
Clubine is the first case in British Columbia to address the effect of ATE insurance on an order for costs. Given the increasing prevalence of ATE insurance in Canada, Defendants should be aware of whether a Plaintiff has obtained ATE insurance and should be prepared to address it in applications for costs. Clubine may also open the door for courts to expand the circumstances under which they consider ATE insurance as a factor in costs awards, in view of the Court’s comments on the chilling effect that ATE insurance has on settlement, and how it affects the relative financial position of the parties.