Accounting for Law
Legal Suppliers, Personal Injury

Legal cost protection to change Canadian litigation

By John Rossos

Irwin Mitchell, a leading U.K. law firm, has recently reported that it has been retained to act in a number of professional negligence actions against lawyers by commercial clients who were not advised about the availability of “after the event” insurance (also known as ATE insurance). ATE Insurance in the United Kingdom is similar to legal cost indemnities offered by our company, BridgePoint Indemnity Company (BICO) in Canada, that protects clients against adverse cost exposure in the event they are unsuccessful prosecuting their claims (plus the option to purchase protection for their counsel’s own costs or disbursements).

Irwin Mitchell expects the number of professional negligence actions to only increase as lawyers fail to ensure that their clients explore all possible options when considering litigation.

The Solicitors Regulation Authority (SRA), which governs lawyers in the U.K., requires lawyers to ensure that their clients are in a position to make informed decisions about pursuing their claim. This means discussing with their clients whether the potential outcomes of their action are likely to justify the expense or risk involved, including any risk of having to pay someone else's legal fees, and how their clients will pay for such expenses. The latter may require the consideration of obtaining an indemnity to cover the legal fees, disbursements and ancillary costs of defence counsel.

Protection is also available to cover the costs of their own counsel’s disbursements. The professional obligations governing U.K. lawyers are set out in the SRA Code of Conduct.

This trend is expected to continue in Canada with the introduction of legal cost protection by BICO. As legal cost protection becomes more prevalent across Canada, litigators will need to advise their clients of the existence of such protectionfailure to do so may result in a negligence claim against the lawyer.

The evolution of the standard of care created by the introduction of a new product has a precedent in the Canadian legal services market with the introduction of title insurance in real estate transactions. Title insurance came into prominence as a result of an increase in negligence claims against real estate lawyers. Real estate lawyers are now obligated by their governing provincial law society’s rules or protocols to assess and advise their clients about title insurance. Today, most real estate transactions will no longer close without title insurance.

Accordingly, lawyers and law firms need to be vigilant concerning new developments in their areas of practice. The adoption of legal cost protection by litigation lawyers, including the practice of integrating the product into their intake processes for new clients, may have already "shifted the sands," creating exposure for lawyers or law firms that have not yet investigated the product and advised their clients as to whether or not it would be of a potential benefit to them. This is particularly true in situations where a litigation guardian has been appointed to prosecute a claim on behalf of an individual who does not have the requisite capacity to represent themselves.

Just as ATE insurance has become a standard part of the retainer process in the U.K., BICO expects that legal cost protection will become an integral part of the retainer process in Canada.

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