Adverse cost policies becoming more common, partly due to growth of litigation funding
As adverse cost policies become more common partly through the growth of third-party litigation funding, plaintiffs’ and defence lawyers will want to take note of a recent Ontario Superior Court ruling, says Bronwyn Martin, a partner at Moodie Mair Walker Lawyers in Toronto.
In Spencer v. Martin and Hillyer, 2023 ONSC 6353, the moving party sought an order to have the law firm, Martin & Hillyer Associates, produce the adverse costs insurance policy it had executed in related litigation. The firm argued that a full, unredacted disclosure of the policy would reveal privileged and confidential information. Justice Andrew Goodman granted the application and ordered the production of the complete policy.
“The privilege argument was completely debunked,” says Martin. “That's going to be a really big takeaway. We’re going to see more defence lawyers asking for the full adverse cost policy and not a redacted version, relying on this case.”
Disclosure of these policies will determine which costs take priority for coverage, impacting decisions of whether to go to trial, she says.
The underlying litigation involved a dispute over an accident with a horse. The respondent in Spencer v. Martin and Hillyer, John Belton, was injured while walking Katie Spencer’s horse in 2010. Martin & Hillyer represented Belton in his ensuing action, which was dismissed. The court ordered Belton to pay $350,000 in legal fees, plus HST, and another $74,472 in disbursements.
The law firm’s adverse costs insurance policy had a limit of $100,000. Belton has not paid any of the trial costs to Spencer and is also suing Martin & Hillyer.
The dispute between Belton and Martin & Hillyer partly concerned how the $100,000 policy is split between the firm’s disbursements and the amount the court ordered Belton to pay Spencer.
Martin & Hillyer’s position was that producing an unredacted copy of the insurance policy would reveal the advice the firm gives to clients, their communications with clients, and the duties between them. Belton waived privilege over the policy, but the firm said the privilege and confidentiality issues impacted other clients and potential clients.
The applicants, Spencer and Elite Insurance Company, argued that the court could not determine the substantive issues without reference to the entire policy.
The applicants submitted another adverse cost policy from the same insurance company, Omega General Insurance, that Martin & Hillyer used. Its contents were identical to the firm’s policy.
Justice Goodman referenced the 1989 Supreme Court of Canada case, Lac Minerals Ltd. v. International Corona Resources Ltd, to state that “there can be no breach of confidence in revealing to others something which is already common knowledge.” Goodman also said he found instructive that in Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274, the judge analysed a contingency fee agreement and adverse cost insurance policy, and there was no mention in the decision of any redacted documents.
Goodman concluded that the insurance policy’s clauses were common knowledge and already in the public domain. The judge said the firm may be relying on its own alleged priority right while attempting to conceal beneath redactions “that very definition or interpretation of the policy,” which “may exert procedural unfairness to the applicants in order to properly advance their point or respond to any argument.”
The firm said that the redactions did not restrict anything concerning priority related to contractual interpretation. But Goodman said the court must review the entire contract to ensure proper contractual interpretation. The SCC has been “extremely clear” that insurance policy interpretation must focus on “interpretation of the words of the policy, read as a whole.”
“I agree with the applicants that a contract cannot be understood without gleaning the entirety of the words of the policy themselves, taken in their ordinary and plain meaning, consistent with the surrounding circumstances relevant to contract formation,” said the judge.
Goodman found that the firm’s redactions were neither privileged nor confidential, and that the entire policy was relevant to the application.