Third-party funding market diversifies

What has been a small industry to date is growing as the Canadian litigation funding market sees new entrants and the restructuring of existing players.

What has been a small industry to date is growing as the Canadian litigation funding market sees new entrants and the restructuring of existing players. Competitors are embracing starkly different models, which presents claimants and lawyers with the challenge of fitting the right type of funding to the right case.

“We’ve been a bit slower than England and the U.S. to get into third-party funding,” comments Paul Michell of Lax O’Sullivan Lisus Gottlieb LLP of Toronto. “We have had a few homegrown players, but now there are lots of conferences and promotional materials that show international groups are moving into the area.”

Lincoln Caylor of Bennett Jones LLP of Toronto has been surprised how aggressively the litigation funders have moved into Ontario, given the size of the market.

“There has been an uptick in interest from potential funders. IMF Bentham is physically here and other big players are giving road shows to large firms,” he says. “Even leading funders in London and New York say it’s still early days there, too, but those jurisdictions have many big cases. We don’t have many significant claims to meet their requirements.”

David Smagata, vice president and chief legal officer of DAS Canada, welcomes the increase in competition.

“It is sometimes lonely being the only voice. Having more competitors drives up awareness,” he says. “People hear a chorus louder than a single voice.”

DAS, as a litigation insurance company, and Bridgepoint Financial Services Inc., as a litigation indemnity company, have been on the frontlines in Ontario from the beginning, along with private law firms that offered financing and indemnities.

The market for indemnities has effectively now been closed by an FSCO ruling last year. The ruling said that legal cost protection, a product offered for purchase by Bridgepoint Indemnity Company (Canada) Inc., met “the criteria to be classed as insurance pursuant to the Insurance Act.” The ruling also said that “no person shall carry on business as an insurer or engage in an act constituting the business of insurance in Ontario without a licence under the Act.”

John Rossos, chairman and CEO of Bridgepoint, says the ruling has changed the marketplace.

“Any private indemnity or legal cost protection must now be tied to a regulated insurance product. Lawyers can’t provide an indemnity to their clients because they are not licensed insurers,” he says.

Bridgepoint has met FSCO’s requirements and is now underwritten by Omega General Insurance Company. It has redesigned its products as insurance policies. “We have a personal injury product that offers blanket cover to a law firm, and a similar class action product that is being introduced as we speak,” advises Rossos. “They offer law firms umbrella coverage that prequalify the firm’s cases. If they fit within the parameters of the coverage, they are automatically accepted.”

Rossos says this approach creates efficiency, particularly for class action litigation. “We do due diligence on the law firm instead of spending six or seven months investigating each underlying case,” he said.

“The law firm has the knowledge that it has finance and insurance in place, and we can ensure the lowest rates and full protection.”

In contrast, DAS offers insurance for adverse costs and disbursements on individual personal injury cases.

“It covers the worst-case scenario where the client thought they had a very good case but failed to persuade the judge,” explains Dominique Zipper, the ATE manager of DAS Canada. “We take the financial blow. The premium is not payable if they lose. They are foolproof products.”

There are several other firms now offering after-the-event or plaintiff protection insurance. There is also a new player in the market offering a distinct product called litigation funding.

Tania Sulan, chief investment officer of Bentham Canada, distinguishes her firm’s offerings from the insurance model.

“We operate in a different space. We focus on complex commercial cases and arbitrations — big breach of contract matters, breach of duty, intellectual property disputes and litigation that flows out of an insolvency event,” she says. “Our primary focus is funding the lawyer fees and lawyer costs through a monthly hourly bill. Ancillary to that, we cover disbursements and court-ordered costs. It’s a different beast.”

Sulan is reporting a lot of interest from Canadian law firms. “People are very curious how it fits with their practice.” There are also foreign-based litigation funding businesses targeting the Canadian market, mainly operating out of the U.S. or U.K. All this diversity means that claimants and their lawyers are now faced with the choice of which model to partner with.

For the future, there is a general expectation of expansion in terms of market size, jurisdictions covered and the variety of options, as well as increased pressure for regulations and professionalization of the market.

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