Adverse Costs Insurance in Ontario: Protecting Yourself Against a Losing Case

Every Ontario plaintiff considering a lawsuit faces the same uncomfortable question: what happens financially if I lose? Beyond your own legal fees, Ontario's "loser pays" approach to costs means an unsuccessful party is usually ordered to contribute toward the other side's costs too. For a plaintiff facing a well-resourced defendant, that downside risk can be a real deterrent to suing at all.

Adverse costs insurance — sometimes called after-the-event, or ATE, insurance — exists specifically to address that risk. This article explains what it typically covers, how it fits into the decision to sue, and what to weigh before buying a policy.

What Adverse Costs Insurance Covers

Adverse costs insurance is designed to cover the costs a plaintiff, or less commonly a defendant, might be ordered to pay the other side if the case is lost. In broad terms, it responds to the "loser pays" risk specifically, not your own legal fees, which are a separate cost entirely.

Typical features of this kind of coverage include:

• A policy taken out after a dispute has already arisen, hence "after-the-event," rather than in advance like most insurance
• Coverage limited to an adverse costs order, not your own legal spend
• A premium that may be contingent on the outcome, payable only, or mostly, if the case succeeds
• Underwriting based on the insurer's own assessment of the claim's likely merits

Why a Plaintiff Might Buy It

The core reason is risk management. Ontario's civil litigation system generally means that even a plaintiff with a strong claim faces some risk of losing — witnesses can underperform, evidence can be excluded, and outcomes are never guaranteed. Adverse costs insurance converts an uncertain, potentially large downside into a known, budgeted cost: the premium.

This can matter most when:

• The claim is being brought against a well-resourced defendant likely to run up significant legal costs in its own defence
• The plaintiff has limited financial capacity to absorb an adverse costs order
• The case is being funded partly or fully through third-party litigation funding, where the funder may require or recommend this kind of protection as part of the arrangement
• The claim, while reasonably strong, involves some genuine legal or factual uncertainty

How It Typically Works in Practice

1. Case assessment — the insurer reviews the claim's merits, often requiring input from the plaintiff's lawyer, before deciding whether to offer coverage and on what terms.
2. Policy terms set — coverage amount, premium structure, and any conditions are agreed before the case proceeds significantly further.
3. Case proceeds — the underlying litigation continues as it otherwise would; the insurance sits in the background as protection.
4. Outcome determines premium and payout — if the plaintiff wins, the premium is typically paid, often from the recovery; if the plaintiff loses, the policy responds to cover the adverse costs order, subject to its terms and limits.

What It Doesn't Cover

Adverse costs insurance is often misunderstood as broader protection than it actually is. It generally does not cover:

• Your own legal fees and disbursements, which are a separate cost category entirely
• The underlying claim you were trying to recover, if you lose
• Costs beyond the policy's coverage limit
• Situations excluded by the policy's specific terms and conditions, which vary by insurer

Because coverage terms differ significantly between insurers, and even between policies, reading the specific terms — ideally with your lawyer — is essential before assuming what is and isn't protected.

Is It Right for Your Case?

Consider adverse costs insurance seriously if:

• [ ] You are the plaintiff in a Superior Court matter with meaningful costs exposure
• [ ] The defendant is well-resourced and likely to incur significant legal costs defending the claim
• [ ] You are using, or considering, third-party litigation funding alongside your claim
• [ ] Losing the adverse costs risk, separate from losing the underlying claim, would be financially significant for you
• [ ] Your claim has been assessed by a lawyer as reasonably strong, since insurers generally require some confidence in the merits before offering coverage

For smaller Small Claims Court matters, where the proportionate, capped nature of costs in that court already limits downside exposure, this kind of insurance is less commonly used.

Frequently asked questions