Since After-the-Event insurance (ATE) was introduced to the Canadian personal injury market it has consistently gained traction as the product's value has been proven time and again. ATE covers a law firm's disbursements as well as costs owed to a defendant following an unsuccessful outcome.
April 22, 2020
In early 2016, I watched a panel presentation debating whether ATE was the "new" standard of care for lawyers. A LawPro representative told the audience of personal injury lawyers that ATE was not the standard of care. At the same presentation, however, senior members of the personal injury bar advocated that it most definitely was the standard of care and cautioned the audience that not having it put the personal injury lawyer at risk.
Fast forward to March 2018, and LawPro published a practicepro piece about ATE titled "What You Need to Know." The Product had now garnered the attention of our professional E&O carrier.
Search the internet and you will find many articles about ATE, covering: what it is, what it does, why you need it, why you don't, what it covers, what it costs, who pays for it, do you need to disclose it, and can you recover the cost for it.
So, what does this mean for the personal injury lawyer? Is having ATE insurance the standard of care? Does specializing in personal injury potentially increase the applicable standard?
The supreme Court of Canada articulated the standard of care owed by a lawyer to their client in the case of Central Trust Co. . Rafuse [1986] SCR No. 2 as follows:
"A solicitor is required to bring reasonable care, skill, and knowledge to the performance of the professional service which he has undertaken."
The standard of care is, therefore, one of reasonable competence and applies equally to all lawyers regardless of your vintage (inexperience is no excuse). When considering the standard, simply ask yourself whether a reasonably informed and competent practitioner would have done the same? When answering this question, the case law[1] has helpfully developed a list of basic criteria for competent legal services, which include:
· To be skillful and careful;
· To advise clients on all matters relevant to the retainer;
· To protect the interests of the client;
· To carry out the client’s instructions by all proper means;
· To consult with the client on all questions of doubt;
· To warn the client of possible risks of action or inaction;
· To call appropriate witnesses;
· To explain the nature, effect, and significance of documents;
· To investigate potential issues and uncertain points of law;
· To advise only on complete instructions adequate to achieve the desired result;
· To act expeditiously where there is time sensitivity;
· To protect the confidentiality of clients; and
· To keep the client informed to such extent as may be reasonably necessary.
In almost every case, the personal injury lawyer will be called upon to explain the loser pay system to clients and specifically the personal risk of proceeding should they lose. This conversation often strikes fear and uncertainty in those unfamiliar with the legal system. For most clients, meeting a lawyer after an accident or loss is their first and only brush with the law. They are anxious and seeking reassurance and guidance.
According to the criteria noted above, the personal injury lawyer must, among other things, (a) protect the client’s interests, (b) advise the client of the possible risk of action or inaction, and (c) advise clients on all matters relevant to their retainer in order to meet the requisite standard of care of a reasonably competent solicitor. Would this include not only informing the client of the risk of adverse costs but also advising that insurance exists to protect them from such a loss? I believe it does.
Over the years, in discussing ATE with lawyers, there are some recurring questions that appear to interest them most.
1. Who else has it? Lawyers considering ATE typically want to know who else has it. Why does this matter? Is it simple curiosity, or is it more about evaluating the standard of care? If the top 10 firms in your region have ATE and you don’t, are you at risk for not having it? I have the unique experience of working both as a personal injury lawyer and in the ATE space, which has allowed me to "peek behind the curtain." I know who sits back there. In other words, in considering what the reasonably prudent solicitor would do, I have the benefit of knowing who has ATE (or at least a great many of them). That affords me a certain perspective on the issue. However, you don't need special access to know who has ATE because the case law will tell you. Look up decisions on ATE, and you will see who is seeking payment of an ATE premium at trial and who is winning decisions on the disclosure of the policy. Look at articles online and you will see firms openly disclosing that they have it and why.
2. Has anyone been sued yet? When discussing ATE and the standard of care, lawyers routinely ask if anyone has been sued yet. So far, so good. I'm not aware of any actions against lawyers, but that is not to say there aren’t any. More importantly, however, I question whether the lack of one should end the inquiry. Who wants to be first? Someone will be first. Why? Because the issue is important and it’s inevitable that someone won’t have been told about ATE, will face an adverse cost award post-trial, and challenge their lawyer's failure to advise them appropriately or protect their interests.
From a best practice perspective, the personal injury lawyer will advise clients about the risk of costs in a personal injury action. Failing to do so puts you at risk of falling below the standard of care. When advising your client on the issue of costs, it seems to follow that this would include a review of insurance potentially available to cover it. However, is advising that ATE exists enough when the client is currently unable to acquire the insurance without their lawyer's participation? So, how does the personal injury lawyer meet an ATE standard of care? What options are available? ATE is available in a couple of different forms.
1. Blanket portfolio coverage sold to the law firm. This gives the lawyer certainty and peace of mind. Every file that enters litigation is covered under one policy with the same terms and conditions. If managed properly, it's pretty simple and provides the firm with the flexibility to introduce the issue of costs when they deem it relevant.
2. File coverage sold to the client. This requires that the law firm enters into a business contract with an ATE insurer. Per the terms of the contract, the lawyer is obliged to distribute the insurance product to each client individually within a short period of the retainer being signed. The lawyer is required to undertake a case by case pitch to every client which is both time consuming and happens early in the case lifecycle when the lawyer is likely loathe to touch on a risk the client won't well understand and may not be relevant if the action has not been commenced and the exposure to defence costs has not materialized.
The easier of the two choices would seem to be blanket coverage initiated when matters enter litigation.
In terms of meeting the standard of care, one must also consider whether holding yourself out as a specialist in personal injury raises the standard you must meet. Some cases impose a higher standard on those who are “specialists” and hold themselves out as such.[2] Most personal injury lawyers who restrict their practice to personal injury are experts in the field. By doing so, however, you may attract a higher standard of care than a general practitioner.[3]
The risk of adverse costs in personal injury is real, especially in recent years, with insurers pushing more cases to trial and having considerable success with juries. With this knowledge, what would the reasonably prudent personal injury lawyer do to protect their client’s interests?
At a minimum, it might include:
· Explaining to your client the risks if their case is unsuccessful;
· Explaining to your client that insurance exists to cover costs and your own disbursements if unsuccessful;
· Obtaining an ATE policy to cover your firm;
· Carefully reviewing with your client the terms and conditions of the coverage and the cost;
· Including reference to ATE in your Retainer Agreement; and
· Documenting clearly up front who will pay for the coverage and how any claim proceeds will be disbursed.
The last time is especially important. Never leave any doubt for after the fact. It should be crystal clear to the client how the ATE claim process will work, should one be required, and how any claim proceeds will be disbursed and in what priority.
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