Hergott: Supreme court ruling changes disbursements
In my Nov. 1, 2012, column, I described a victory in the highest court in New Brunswick that I predicted would “pave the way for a change in the law in other jurisdictions, including British Columbia.”
I am very pleased to report that a May 13, 2013, decision of the British Columbia Supreme Court has met my prediction head on.
The legal issue has to do with the interest incurred financing expenses (known as “disbursements”) that lawyers pay to prosecute personal injury claims.
Prosecuting an injury claim can be very expensive. It can cost tens of thousands of dollars to take a single case to trial.
The vast majority of cases settle before trial, but when accepting your case your lawyer is committing to proceed to trial to achieve justice if the insurance company fails to make a fair offer.
The law has always been, at least in the “forever” of the 17 1/2 years that I have been in practice, that the insurance company must reimburse those expenses as “costs” at the conclusion of a successful claim.
This is, of course, in addition to paying the fair compensation that has been agreed or ordered by the court.
Someone has to come up with those expenses until the claim is resolved, though.
The money has to be borrowed from somewhere, and that “somewhere” is going to charge interest.
The lawyer typically puts his or her own neck on the line, personally guaranteeing the debt, which should give you added confidence when a lawyer agrees to take on your case.
The actual interest expense, though, is passed on to you as a term of most contingency fee arrangements.
Interest rates are historically low. I think I am paying in the neighbourhood of three per cent interest on my mortgage.
Unfortunately, as willing as banks are to lend money at low interest rates to fund a mortgage, secured by your house, banks are reluctant to lend money to fund disbursements.
To give you a bit of context, at any given time I’ve got myself personally extended approaching $1 million financing disbursements on the personal injury cases I am prosecuting.
After mortgaging my home to the hilt, I’m left poking around to find “sub-prime” lenders.
Sub-prime lenders charge much higher interest rates. For example, I’m having to pay 10 per cent interest for some of my disbursement financing, and I would consider myself a very low risk borrower.
Up until now, while insurance companies have had to reimburse your disbursements, themselves, as “costs,” they have gotten away with not having to pay the interest reasonably incurred to finance those disbursements.
At the high rates of interest involved, and the fact that cases can take years to resolve, that interest expense can be thousands of dollars.
That’s a few thousand dollars essentially coming out of your pocket that has gone uncompensated.
The decision of Mr. Justice Savage, which for me read like a beautiful piece of music, has changed that.
As of May 13, 2013, the law in this province is that a defending insurance company is accountable not only to reimburse reasonably incurred disbursements but is also accountable to reimburse reasonably incurred interest to finance those disbursements.
It’s only fair. The law has finally come around to deliver fairness on this point.
Undoubtedly, the insurance company defending the case will appeal Mr. Justice Savage’s decision to our highest court, the British Columbia Court of Appeal.
I will be waiting with bated breath for the result of that eventual appeal.