The Financing Litigation Series: Legal Expense Insurance

The Financing Litigation Series: Legal Expense Insurance

December 14, 2017

BY Valerie Le Blanc

This blog post is the fifth in a six-part series showcasing each of the six financing models explored in the Study Paper on Financing Litigation (PDF), published on October 4, 2017, and recent developments in British Columbia. To read other posts in the series click here.

Legal expense insurance offers coverage for legal services. Depending on the policy, individuals pay an annual insurance premium to the insurance provider in exchange for legal information, advice and representation. Typically, legal expense insurance falls under two categories, before-the-event and after-the-event, defined as follows:

• Before-the-Event—insurance against potential litigation and other legal issues that can arise following a hypothetical future event (includes disbursements and fees).
• After-the-Event—insurance purchased after litigation has commenced (e.g. for an injury or a dismissal) as protection against part or all of the risk of paying an adverse costs award, as well as an individual’s own expenses.

Highlights from the Study Paper on Legal Expense Insurance

Optimal Uses

• Personal coverage (e.g. protection against common legal issues, such as employment disputes, small claims disputes, no-fault accidents, and personal injury matters);
• Commercial businesses (e.g. purchased as part of an insurance bundle, legal expense insurance can provide protection for small business owners who are new to the legal complexities of managing a business, such as in the event of a lawsuit by a former employee, an injured customer, a distributor, or an uncooperative landlord);
• Groups and unions (often offered to members of unions as part of their benefits package to provide union employees and eligible family members access to legal services, either fully covered by the plan, or at a discounted rate).

Advantages

• Addressing service gaps for middle-income clients
• Affordability

Disadvantages

• Potential loss of control
• Lack of full coverage—costs and range of services

Ethics and professional responsibility considerations

• Potential conflicts of interest and other ethical concerns

Opportunities for systemic, structural, or legal change

The consultation participants and research highlighted three ideas where changes could be considered to promote legal expense insurance in British Columbia: increase public awareness; establish a financial ombudsperson; and expand regulations.

Some Recent Developments on Legal Expense Insurance (since June 2017)

• Insurance Business Magazine (Canada) published an article on August 2, 2017 about the growth of legal protection insurance in Canada. To view the article, visit the website here.
• The Canadian Bar Association Futures Initiative published an online book on August 23, 2017 by Noel Semple, Accessibility, Quality and Profitability for Personal Plight Law Firms: Hitting the Sweet Spot. The book aims to “identify sustainable innovations that can make the services of personal plight law firms more accessible to all Canadians.” Chapter 2 of the book includes a spotlight on legal expense insurance for its ability to offer more price certainty for clients. To view the online book, visit The Canadian Bar Association publication page here.
• Civil Justice Council (UK) published a report on November 28, 2017, The Law and Practicalities of Before-the-Event Insurance—An Information Study. The terms of reference delivered to the working group were to “investigate the current (and potential) application of ‘Before-the-event’ (BTE) insurance in the current and potential civil justice landscape; the content, coverage, and take-up of various BTE policies which are available to consumers and to businesses; and any gaps in the market in which BTE insurance may not be available or procurable.” The report also examines the methods used to assess BTE claims, and how BTE policies operate within regulatory guidelines. The report does not make specific recommendations for reform. Rather, it serves as a source of information and as a guideline to BTE policy-makers, and consumers of BTE legal expense insurance. To view the report, visit the Civil Justice Council webpage here.

About the Financing Litigation Legal Research Project

The Study Paper on Financing Litigation (PDF) examines the traditional and alternative methods litigants use to pay for litigation. The cost of litigation is a significant barrier to accessing the justice system. While some disputes can be resolved outside the courtroom, litigation is often the only means to achieve an equitable result. However, a litigant’s ability to pay for the legal fees and expenses that come with litigation may become a concern before, or during, the process. Taking a legal dispute to trial is expensive. Many litigants lack the financial resources to take on the risk of an unsuccessful case.

The study paper reviews six financing models that have emerged both in Canada and internationally:

• Unbundled legal services;
• Third-party litigation funding;
• Alternative fee arrangements;
• Crowdfunding;
• Legal expense insurance; and
• Publicly funded litigation funds.

The study paper also identifies 18 opportunities and ideas to consider for structural, systemic or legal change to enhance the use of each financing option in British Columbia. It concludes with a chapter that briefly discusses five alternative ideas that could mitigate the rising cost of legal services and improve access to justice generally.

This project was made possible by funding from the Law Foundation of British Columbia.

Useful Links

• Study Paper on Financing Litigation (PDF)
• Highlights from Chapter 10—Legal Expense Insurance (PDF)
• List of Resources—Legal Expense Insurance (PDF)

Stay tuned for our post on January 10^th on the topic of publicly funded litigation funds!

*Blog post updated on December 18, 2017.