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Court to decide on priority of payment in ATE policy

An Ontario court is deciding who has priority of payment in an After-The-Event (ATE) insurance policy where there may not be any previous agreement for disbursements, says Nick Robson, vice-president and general counsel in the Toronto office of TheJudge Global.

The issue ultimately comes down to who owns an ATE policy, Robson tells

"The issue came about because a few lawyers reported to us that some insurance companies are trying to get top priority" in ATE insurance disbursements, he says.

“It is normally a silent issue as to who obtains priority,” Robson says.  “That’s because the insurance policies, which are normally silent on the subject, are personal and private financial instruments of the insured themselves, no on else.”

He says ATE policies are much like bank accounts so no one other than the client who owns the policy should determine who gets paid first.

"Some defendants, and even the insurance companies who are acting on behalf of the defendant, are claiming they should have priority," Robson says. "They wouldn't say that about bank accounts. I don't know why they're treating this financial document different from any other instrument."

Robson says the matter is now before the courts but in other jurisdictions, it was found to be a prioritized private financial instrument.

"If they're worried about recovering their damages, they can always use a security for costs motion, or request that their fees are in priority from the outset," he says. "At the outset a lawyer should ask if their policies been accepted as good security by appellant courts in Canada.  If the answer is no, find an alternative broker fast."

The policy is paid out to the trust account at the client's law firm, and at the direction of the client, Robson says. Some lawyers have made agreements at the outset with their clients that they are paid first, but ultimately, the client owns the policy, he says.

In one case, the insurance company is seeking priority payment from a client who was underinsured and lost their case, asking a court to determine priority.

Robson suggests that no one has priority unless it is previously determined in a security for costs motion.

"My argument is that it is a financial instrument of the client and all parties have the ability early in the case to get an agreed security of the costs, and if it wasn't done, it's a bit hard to come back after the trial and assert authority for priority," he says.

"It's too late, and I would argue it makes a mockery of the system," Robson argues. "How is a plaintiff, who does not have the deep pockets of the defendant insurance company, able to properly mitigate their own costs exposure if they also now have the responsibility of mitigating their opponents? How would they hope to determine what their exposure is?"

He says the market will probably adjust its policies depending on the ruling or rulings by writing "far more restrictive policies to make sure our clients are as fully protected as they should be."

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