Adverse Cost Insurance, sometimes referred to as “After the Event Insurance”, is a new insurance product in Canada. It has been in use in the United Kingdom for some time. Once a lawsuit has been filed by your lawyer (you are the plaintiff), the party you are suing, usually represented by an insurance company (the defendant), can make what is called a formal offer to settle by offering to pay you a specific dollar amount. The defendant will often make this offer because it serves to increase the risk to the plaintiff of continuing the lawsuit.
In the normal course of events, if you go to trial and the court awards you monetary compensation for your claim, you would be entitled to also collect your legal costs (not your entire legal fees) and the legal disbursements that your lawyer has incurred. (These are out-of-pocket expenses for items such as medical legal reports, accident reconstruction reports, future cost of care reports, etc.)
Once a formal offer has been made by the defendant, if the case proceeds to trial and the court awards you less than the amount of the formal offer, the court can also make an order that you pay some of the defendant’s legal costs and legal disbursements in addition to some of your own legal expenses. This can result in a loss to you of tens of thousands of dollars and therefore increases your risk of continuing the lawsuit.
When you obtain Adverse Cost Insurance and, in our opinion, the formal offer is not adequate compensation for your injuries, we remove the risk of you continuing the lawsuit. The insurance policy will cover any amount that the court requires you to pay to the defendant if the court awards less than the formal offer. The policy will also pay for your own disbursements if you don’t recover them from the defendant. Not only does this remove an extra layer of risk from the legal proceedings, it also gives you and your lawyer a better negotiating position as you can no longer be bullied by the insurance company with a low formal offer.
At Stephens & Holman, we provide you the opportunity to purchase Adverse Cost Insurance. This is one of the ways we protect the rights of injured clients and their families.