The rising costs of prosecuting class actions and the risk
of adverse costs awards rises has represented a significant impediment to the commencement of class proceedings and, as noted by Belobaba, access to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive.
«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.
This will allow insurers / defendants to avoid having to make the kind of inflated offer they had to previously — not in keeping with their view of the true value of the claim — in order to protect themselves
against adverse costs awards — a very positive development.
As the potential premium is rather insignificant when a plaintiff has a case worth hundreds of thousands of dollars, it is wise to err on the side of caution and purchase sufficient insurance to cover any anticipated
possible adverse cost award.
It is in the interests of justice that plaintiffs be able to pursue meritorious claims without fear of a potentially
devastating adverse costs award,» Salmers writes in his endorsement.
The argument that
adverse costs awards constitute a barrier to justice in ordinary litigation is a familiar one; it is easy to envision how the prospect of liability for such costs would deter a litigant from pursuing an action.
The judge in the case ruled that the defendant should pay for the premiums because it was in the interests of justice for plaintiffs to be able to pursue valid claims without fear of a
large adverse costs award.
Typically, the funder will agree to finance the legal fees and expenses — and assume the risk of
an adverse costs award — in exchange for a percentage of any settlement or final award.
On the other hand, if there was
an adverse cost award, the premium was waived.
For example, $ 200,000 in coverage would cost somewhere between $ 2,350 and $ 3,350 depending on the nature of the case and the assessed risk of
an adverse cost award.
Where the damages awarded after a long trial are modest, it is possible for
the adverse cost award to exceed the amount of damages, meaning that the plaintiff's personal assets are at risk.
Although this indemnity product provided some level of comfort to plaintiffs who were not seeking or expecting significant damages, it offered limited protection to plaintiffs with claims worth hundreds of thousands of dollars because it was very unlikely that
any adverse cost award would exceed the amount of their damages.
It is also important to anticipate how long it will take to try the case and therefore how large
an adverse cost award might be.
The risk of
an adverse cost award can deter a plaintiff with a valid claim proceeding to trial in the face of an offer to settle which their lawyer advises them is unreasonably low.
For a premium the issuer of the product undertook to pay any portion of
an adverse cost award over and above the damages awarded to the plaintiff.
This is called
an adverse costs award.
Knowing, as he did, his harmful evidence, Mr. Henry should have appreciated the deep weakness of his claim and the risk of significant apportionment against him or the outright dismissal of his suit and his exposure for
an adverse costs award.
Even a successful plaintiff who recovers damages at trial but does not recover more in damages than a previous offer made by the unsuccessful defendant may find that they are the subject of
an adverse cost award.
Not only does this new insurance policy protect a plaintiff from
an adverse cost award, it also covers the plaintiff's unpaid disbursements.
If a plaintiff is contemplating purchasing first pay insurance it is important that they reach an understanding with their lawyer as to whether or not the unpaid disbursements will be a first claim against the policy limits in the event of
an adverse cost award.
However, if the plaintiff faces
an adverse cost award, they may remain liable to their lawyer to pay some or all of these disbursements.
Once again the premium is only payable if the plaintiff is successful and does not face
an adverse cost award.
This product protected a plaintiff from
an adverse cost award that required payment of all of their damages and also put their other assets, such as their house, at risk
It can be a flat rate which will pay out a pre-determined amount (an example would be a premium of $ 1,000 to pay out up to $ 100,000 * in the event of a lost plaintiff's case, to be put towards
an adverse costs award, disbursements, and HST).
A comprehensive policy may provide coverage in the amount of $ 100,000, available to pay out
an adverse costs award, disbursements, and HST.
Although Attis limits a client's ability to seek «after - the - fact» indemnification from counsel for
an adverse costs award, the decision does not preclude such recourse altogether.
Take for example
an adverse costs award of $ 150,000 and disbursements of $ 50,000.
The lawyer may be then apply the monies to
the adverse cost award or disbursements.
Or should the $ 100,000 be pro-rated towards both
the adverse costs award and disbursements?
Does all of it go towards
the adverse costs award, leaving the client and lawyer on the hook for the remainder $ 50,000 in adverse costs, and $ 50,000 in disbursements?
Does all of it go towards paying the disbursements, leaving the client on the hook for $ 100,000 of
the adverse costs award?
Among the debated issues were liability of third party funders and
adverse costs awards, the effect of third party funders on orders for security for costs and best practices for arbitrators and third party funders.
However, after deducting the interim support she had already received and
all adverse cost awards made against her, Ms. Quinn was left owing the respondents over $ 85,000.00.
Since then,
adverse costs awards have risen dramatically.
Presumably, such a withdrawal could wield considerable influence by cutting off litigation funding and re-exposing the representative plaintiff and / or class counsel to
an adverse cost award.
The potential for settlment or damages must be weighed against the expense of litigation and, in some jurisdictions, the risk of
an adverse cost award.
From whose pocket
an adverse cost award is paid is of no consequence to the defendants and the third parties,» wrote the judge.
The green paper suggests the potential deterrent for claimants of
an adverse costs award could be partially addressed by cutting down costs; for example by exempting collective actions from court fees, or by capping legal fees.
In most funding agreements, the funder agrees to assume the risk of liability for
any adverse costs award, if the claim is not successful.