Court Rules That Adverse Costs Insurance Is Not A Compensable Disbursement

In Wynia v. Soviskov, the Court considered the issue of whether or not the premium for adverse costs insurance was compensable as a disbursement.

 

Adverse costs insurance, also known as “after the event” insurance, is a form of insurance policy purchased by a Plaintiff to provide financial protection in the event that the Court makes a judgment for costs against the Plaintiff after a trial should the Plaintiff be unsuccessful. It can also apply to a successful Plaintiff who is granted an award at trial that is less than the amount of the Defendant’s formal offer to settle. A benefit of purchasing the policy is that it can help level the playing field in that Plaintiffs, who may be hesitant to proceed to trial out of fear of a crushing costs award, can have access to justice.

 

In the case at bar, counsel for the Plaintiff sought to recover the cost of premiums for an adverse costs insurance policy purchased by the Plaintiff to insure against the Plaintiffs’ own disbursements, as well as the Defendant’s costs and disbursements.

 

There appeared to be no British Columbia case authority directly on point. Counsel for the Defendant relied on the Ontario case of Markovic v. Richards et al. for the proposition that the cost of premiums for an adverse costs insurance was not a compensable disbursement.

 

Rule 14-1(5)(a) of the British Columbia Supreme Court Civil Rules states that a registrar must determine which disbursements have been necessarily or properly incurred in the conduct of the proceeding. In the case at bar, the Court cited the well known British Columbia Court of Appeal case of MacKenzie v. Rogalasky for judicial consideration of the meaning of necessarily or properly incurred in the conduct of the proceeding.

 

In ruling that the premiums for an adverse costs policy are not recoverable as a disbursement, the Court commented :

 

[6] In British Columbia, to be recoverable as a disbursement SCCR 14-1(5) provides that the disbursement must have been necessarily or properly incurred in the conduct of the proceeding. The phrase “necessarily or properly incurred in the conduct of the proceeding” was recently addressed by the Court of Appeal in MacKenzie v. Rogalasky, 2014 BCCA 446. The Court of Appeal states …

 

[79] The rule, in its current form, permits the recovery of “disbursements … incurred in the conduct of the proceeding”. In my view, quite apart from the language “incurred in the conduct of the proceeding” the term “disbursement”, when used in the context of a costs rule that relates to the taxation of costs in particular litigation, does contain limits that narrow its potential broad applicability. It appears to me that the purpose of permitting the recovery of disbursements in the context of a costs regime is to permit the recovery of those expenses that arise inherently and directly from the issues in the case which relate, as the appellants suggest, to the direction, management, or control of litigation and which pay for materials and services used to prove a claim or defence. These expenses arise directly from the nature and conduct of the allegations in a proceeding.

 

[7] In my view, applying the reasons of the BCCA in MacKenzie v. Rogalasky, supra, the cost of insurance coverage is not a proper or necessary disbursement incurred in the conduct of the proceeding. No doubt it provides a measure of financial comfort to the plaintiff, however, it does not arise from the exigencies of the proceeding and relate directly to the direction, management, or control of the litigation used to prove a claim against the defendants. Accordingly, the cost of the insurance coverage is disallowed.

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