Adverse Costs Insurance in Personal Injury Cases: What It Is and Why It Matters

Most people understand the basic idea of a contingency fee arrangement: if your personal injury case succeeds, your lawyer is paid from the settlement or judgment. If the case does not succeed, the lawyer absorbs the time and effort spent on the file. Lawyers who work on contingency, therefore, aim to take on files where the client has a reasonable chance of success – when the claim succeeds, the client receives compensation for their injuries, and the lawyer is paid for the work.

That arrangement is important for access to justice. It allows injured people to pursue claims without paying legal fees by the hour as the case progresses. Without contingency fees, very few people could afford to sue an insurance company, a large corporation, a municipality, or another well-resourced defendant.

But there is a second risk in civil litigation that is less widely understood.

Even when your lawyer works on a contingency-fee basis, you may still face personal risk if the case is unsuccessful – the risk of being ordered to pay some of the other side’s legal costs.

That is the risk-averse cost that insurance is designed to address.

What Are “Adverse Costs”?

In Ontario, the general rule is that the losing party pays some of the winning party’s legal costs. These are called, simply enough, “costs.” They rarely provide full reimbursement for the winning side’s costs. They are nonetheless often substantial. “Costs” are what a court awards a successful litigant and are not necessarily the same as the lawyer’s “fee” – particularlzy where the fee is a contingency one, calculated as a percentage of the client’s recovery.

For an injured plaintiff, this is more than an academic concern. A person may have a legitimate claim, have suffered serious injuries, and have no realistic ability to pay a lawyer by the hour. Yet if the case is lost at trial, or the result is worse than an offer they should reasonably have accepted, they may be ordered to pay a portion of the defendant’s costs.

In personal injury cases, the defendant is almost always backed or indemnified by an insurance company. That insurer is experienced, well-funded, and accustomed to litigation, and it typically retains its own counsel (often in-house counsel, these days) to represent its insured. The plaintiff, by contrast, is usually trying to manage pain, disability, lost income, family disruption, and financial uncertainty all at once. The two sides are not in the same position when it comes to absorbing risk.

Adverse costs insurance exists, in large part, to address that imbalance.

What Is Adverse Costs Insurance?

Adverse costs insurance is sometimes also called “ATE” insurance, short for “after-the-event” insurance. The “event” is the accident or incident that gave rise to the claim.

In broad terms, it is designed to protect a plaintiff against some of the financial consequences of an unsuccessful lawsuit. Depending on the policy, it may cover:

• costs ordered against the plaintiff;

• the plaintiff’s own disbursements;

• expert reports;

• court filing fees;

• medical records;

• mediation expenses; and

• other litigation expenses, up to the policy limit.

The details matter, and the policies are not all the same. Coverage limits, exclusions, premiums, timing, and the definition of an “unsuccessful” case all vary from one policy to another.

The basic idea, though, is simple: adverse costs insurance reduces the likelihood that an injured plaintiff will be personally exposed to a large costs award if the case goes badly.

Contingency Fees and Adverse Costs Insurance Address Different Risks

A contingency fee arrangement and adverse costs insurance address two distinct risks.

When a lawyer takes a personal injury case on a contingency basis, the lawyer is putting their fee on the line. If there is no recovery, the lawyer is not paid for the time spent on the file. The law firm may also incur significant disbursements – sometimes for years – such as the cost of medical records, expert reports, court fees, and mediation expenses.

Without ATE insurance, the lawyer usually risks their time and (where the client has not agreed to be responsible for them, regardless of outcome) the disbursements. The client, however, may still face a different risk: an order to pay the other side's costs.

This distinction matters. “You do not pay legal fees unless we recover money for you” does not mean “there is no possible financial risk to you at all.” In Ontario, the costs consequences of an unsuccessful case can still fall on the plaintiff personally.

Adverse costs insurance is intended to close that gap. It makes the risk of litigation more manageable for someone with a meritorious claim but no ability to absorb a large costs award.

Why the Risk Falls Unevenly

Personal injury litigation almost always pits an individual plaintiff against an insurance company. That does not mean the plaintiff is always right, or that the insurer is always wrong. It does mean that the two parties enter the litigation with very different financial resources and appetites for risk.

An insurance company may be defending hundreds, or even thousands, of files at any given time. It has lawyers, adjusters, experts, and systems in place. Any single lawsuit is just one file among many.

For the injured person, the lawsuit is often one of the most important events of their life. It may involve their health, their income, their housing, their family stability, and their future care. The fear of an adverse costs award – on top of everything else – can lead a reasonable person to settle too cheaply, even when the claim has genuine merit.

Litigation is expensive, and cost awards can be high. Adverse costs insurance is a relatively recent way for injured plaintiffs to reduce a personal litigation risk that, not long ago, simply had to be carried by the plaintiff alone.

Adverse costs insurance is not a magic shield. It does not guarantee success, nor does it protect a plaintiff who ignores reasonable offers. What it can do is give an injured person enough confidence to bring a fair claim, participate meaningfully in mediation, and make decisions on the merits rather than out of fear of financial ruin.

Does the Other Side Have to Be Told About the Insurance?

This is one of the areas where the law has developed considerably.

Ontario courts have grappled with two related questions: must a plaintiff disclose the existence of adverse costs insurance, and must the actual policy be produced to the defendant?

The general direction is reasonably clear: the existence of a policy is usually disclosable, and the policy itself is, increasingly, being ordered produced.

Earlier decisions drew a distinction between policies held in the plaintiff’s own name and “blanket” policies held by the plaintiff’s law firm covering all the firm’s files. Where the policy belonged to the law firm rather than to the plaintiff, courts were often reluctant to order production of the policy itself, sometimes on grounds of privilege or confidentiality.

That reluctance has been eroding. In Fleming v. Brown, 2017 ONSC 1430, Justice Grace ordered production of an adverse costs insurance policy under Rule 30.02(3) of the Rules of Civil Procedure. In Spencer v. Martin and Hillyer, 2023 ONSC 6353, Justice Goodman ordered the law firm holding a blanket adverse costs policy to produce the full, unredacted document, rejecting the firm’s argument that the policy was protected by solicitor-client privilege or confidentiality, in part because a substantially identical policy from the same insurer had already been filed publicly in another court proceeding.

Most recently, in Snagg v. Makhoul, 2024 ONSC 3735, Justice Roger expressly disagreed with the earlier line of cases that had refused production of firm-blanket policies. He ordered the plaintiffs to disclose the insurer, the amount of coverage, what was covered, and any conditions affecting availability, and to produce the policy itself, subject to any properly substantiated claim of privilege. Justice Roger reasoned that the disclosure rules – Rules 30.02(3) and 31.06(4) of the Rules of Civil Procedure – apply on their plain language to “any insurance policy under which an insurer may be liable” to satisfy a judgment and are not limited to policies in the name of, or under the control of, a party.

The practical point for clients is this: adverse costs insurance cannot be kept entirely invisible in litigation. The other side is generally entitled to know that a policy exists, and depending on the circumstances, they may be entitled to see the policy itself. As of June 2026, the Ontario Court of Appeal has not yet ruled on the question, so the law will continue to develop.

Can the Insurance Premium Be Recovered from the Defendant?

A related question is whether the insurance premium can be claimed as a disbursement if the plaintiff succeeds in the action.

A “disbursement” is an out-of-pocket expense incurred to advance the litigation. Court filing fees, expert reports, medical records, process servers, transcripts, and mediation fees are common examples.

The early Ontario decisions generally held that the ATE premium was not recoverable. In Markovic v. Richards, 2015 ONSC 6983, Justice Milanetti held that the premium was not a proper assessable disbursement, on the basis that the insurance did not directly advance the litigation in the same way as, say, an expert report. A series of decisions followed, including Foster v. Durkin, 2016 ONSC 684; Valentine v. Rodriguez-Elizalde, 2016 ONSC 6395; and Little v. Floyd Sinton Limited, 2018 ONSC 3165.

More recently, Ontario judges have moved in the opposite direction. In Armstrong v. Lakeridge Resort Ltd., 2017 ONSC 6565, Justice Salmers expressly disagreed with Markovic. He treated the deterrent effect of a potential costs award – on individuals of limited financial means with otherwise meritorious claims – as an access-to-justice concern that ought to weigh in favour of allowing the premium as a disbursement. In Stewart v. Wood, 2019 ONSC 3931, Justice Tausendfreund considered both lines of authority and treated the premium as raising an “access to justice” question. He allowed it as a recoverable disbursement against the unsuccessful defendant.

The Court of Appeal has not yet weighed in. As the law currently stands, whether a premium will be recovered depends on the facts of the case, the nature and amount of the premium, and the judge assessing costs.

For most clients, though, the recoverability of the premium is a secondary question. The main purpose of the insurance is protection. Whether the premium can later be recovered from the defendant is a meaningful issue, but secondary to the reason for having the insurance in the first place.

Adverse Costs Insurance Does Not Replace Good Judgment

For all its usefulness, adverse costs insurance has to be understood for what it is, and what it is not.

It does not allow a plaintiff to pursue a weak case without consequences. It does not mean settlement offers can be ignored. It may not cover every dollar of a costs award. Most policies have limits, exclusions, reporting requirements, and conditions that counsel must monitor carefully.

As Spencer v. Martin and Hillyer illustrates, when costs awards exceed the policy limit, the plaintiff is on the hook for the difference. Policy limits matter, and the limit selected should be a deliberate decision based on the realistic costs exposure on the particular file.

Policy wording matters just as much. Where the policy proceeds are paid – to the plaintiff, to the defendant, to the plaintiff’s lawyers’ disbursement account, or some combination – depends on what the policy says. In Spencer v. Omega Insurance Company, 2025 ONSC 1022, the court read the policy language to require that the full $100,000.00 limit be paid directly to the successful defendant and its insurer, leaving the plaintiff and his lawyers with nothing from the policy to apply against their own disbursements. The Court of Appeal addressed entitlement to ATE proceeds in a different context in Peter B. Cozzi Professional Corporation v. Szot, 2020 ONCA 397, where a contingency fee agreement involving a plaintiff under disability was found unenforceable. Clients should understand at the outset where the money is likely to flow if the case goes badly.

Proportionality is another concern. Many of the ATE policies available to law firms provide a blanket amount of coverage – $200,000.00, for example – for a fixed premium, provided the coverage is obtained within a certain time window after the lawyer is retained. In smaller cases, particularly those brought under the Simplified Procedure, it is worth a conversation between lawyer and client about whether the eventual premium is a worthwhile cost.

Most ATE policies in the personal injury market are “non-recourse” – meaning the premium is deferred and payable only if the case is won, whether by settlement or after a favourable outcome at trial. That feature is helpful, but it does not change the underlying premise: the premium is paid out of the client’s recovery, and on a smaller file, the premium can take a noticeable bite out of the net result.

A plaintiff still needs sensible legal advice about liability, damages, causation, expert evidence, settlement offers, and trial risk. The insurance is a tool, not a substitute for judgment.

Why This Matters

The civil justice system should be available to ordinary people, not only to those who can afford to lose.

For many injured plaintiffs, the fear of an adverse costs award is not theoretical. It affects whether they bring a claim at all. It affects whether they accept an unfair offer. It affects whether they are prepared to proceed to trial when the case warrants trial.

A contingency fee arrangement helps by removing the obligation to pay legal fees as the case proceeds. Adverse costs insurance helps with the separate risk of being ordered to pay the other side’s costs if the case is unsuccessful. Together, they make it possible for injured people to pursue legitimate claims without a single bad outcome causing financial ruin.

Every case is different. Whether adverse costs insurance is appropriate, and on what terms, depends on the facts of the claim, the litigation risks, the available coverage, the premium, and the client’s own circumstances.

Litigation will always involve risk. Plaintiff counsel’s task is to help the client understand the risk, manage it intelligently, and make informed decisions at each stage of the case, including – at the front end of the action – acquiring adverse cost insurance where it makes sense.

Contact Graham Bennett to discuss your claim, litigation options, and the strategies available to help protect your financial interests while pursuing the compensation you deserve.