Rising litigation costs are affecting commercial insurance in Canada

Suing a person or a company is often easier said than done, at least in Canada. It takes a lot of effort, money and time. But according to a new report from global law firm Dentons LLP, third-party investors are using the Canadian court system to profit on lawsuits.

"Law firms are increasingly using third-party litigation funding to pay to pursue claims that would likely not be pursued otherwise," Liam McGuinty, the Insurance Bureau of Canada’s (IBC) vice-president of strategy, said in a statement.

"Competitive insurance markets work best for consumers when they are supported by clear legal frameworks and efficient regulatory systems. In Canada, litigation funding remains a speculative financial industry that is largely unregulated. Left unchecked, this could impact Canada's property and casualty commercial insurance market and potentially affect the cost of commercial insurance."

Litigation in Canada compared to the U.S.

IBC commissioned Dentons to research emerging trends in legal practices in both Canada and the United States that are placing pressure on commercial insurance claims. The U.S. Chamber of Commerce recently put a price tag on the cost of lawsuits in the country at 2.1% of the U.S. GDP or $4,207 per U.S. household.

Dentons found that litigation trends driving liability pressure in the United States are, for the most part, the same as those in Canada, although to a lesser degree in this country than can be found in our southern neighbours.

In addition to the growth of litigation funding, Dentons also found that class action litigation has significantly increased across Canada, which a release attributes to an increase in legal advertising that encourages Canadians to launch lawsuits.

The report notes B.C. in particular is a very plaintiff-friendly province.

Canada has a whole is seeing an increase of active civil cases and arbitration as well as an increase in litigation related to cybersecurity, privacy and regulatory matters including environmental and securities disclosures.

At the same time, Canada sees significantly lower damages awards than in the U.S.

"Insurance consumers ultimately foot the bill for legal abuse," said McGuinty. "It's important to have a legal framework that addresses civil wrongs and provides remedies for individuals who have been harmed by the actions of others. But as we're also seeing in the United States, there are weaknesses in the current legal systems that are ripe for exploitation. We hope this report provides some insight for governments and regulators on the need to stay on top of litigation trends in Canada and avoid the type of impact we've seen south of the border."