*Since the writing of this blog the decision has been affirmed.
These applications arose as a result of an underlying action brought by Quoc Nguyen (“Nguyen”), through his litigation guardian, against Jerzy Szot (“Szot”) for injuries arising from a motor vehicle accident. Nguyen was represented by Peter Cozzi. At trial, Szot was found liable for the accident, however, the damages awarded did not exceed the statutory deductible, nor did Nguyen’s injuries breach threshold. As a result, Nguyen was ordered to pay Szot $161,790 in costs.
Nguyen had obtained an ATE policy through DAS Legal Protection Insurance Company Limited (“DAS”) that provided $100,000 in coverage for adverse costs and disbursements incurred on his behalf. The claim was submitted and $100,000 was paid to Mr. Cozzi in trust. Nguyen executed a Direction authorizing Mr. Cozzi to apply the proceeds to his disbursements of $68,636.73, and the balance to the costs award.
Mr. Cozzi sought a declaration that the proceeds were the sole property of Nguyen, that the ATE policy was not a bond and Nguyen had the legal right to assign the proceeds to Mr. Cozzi.
Aviva, Szot’s insurer, brought a cross-application for a declaration that it had priority over the proceeds over payment of the plaintiff’s disbursements.
Justice Nishikawa held that neither Mr. Cozzi, nor Aviva, were entitled to the proceeds.
Justice Nishikawa reviewed the agreements between the parties, including the policy wordings, the Contingency Fee Agreement (“CFA”) and the Direction.
One year before trial, and nine years after the action was commenced, Mr. Cozzi and Nguyen entered into a written CFA. At that time, Nguyen did not have the capacity and his Litigation Guardian or Guardian of Property was not present. Accordingly, Justice Nishikawa found the CFA invalid. This consequently rendered the Direction unenforceable. As such, Mr. Cozzi could not be entitled to apply the proceeds to his disbursements.
Of note, Justice Nishikawa questioned as to why there was no CFA for the first 9 years of the retainer.
Generally, the terms of an ATE policy attach to a CFA and operates for the duration of the CFA. Despite this, DAS took the position that the proceeds were paid under a valid ATE Policy and did not seek their return.
Justice Nishikawa found that Aviva had no legal basis for the proceeds under the ATE policy. The ATE policy was between DAS and Nguyen, of which Aviva was not a party, nor a named beneficiary. There was no issue of priority of payment as the only beneficiary of the ATE policy was Nguyen. The ATE policy clearly stated it would respond to both payment of costs and disbursements. Lastly, Aviva could not claim as a non-party against DAS, under sections 132 and 258 of the Insurance Act.
Justice Nishikawa held that, as the only beneficiary to the policy, Nguyen was the only person entitled to the proceeds, and as such, he would have the right to determine how the proceeds were to be used.
At the end of the day, the plaintiff is the only beneficiary to an ATE policy, and as such, it is up to the plaintiff to decide how the ATE proceeds are paid, and consequently, there is no priority of payment of the proceeds. Obviously, where a plaintiff has an unsatisfied order against him for costs, and has ATE insurance coverage, one of the easiest way to protect the plaintiff from having a judgment entered against him is to assign the ATE proceeds in exchange for a release. If a plaintiff chooses to not do so, then it is far more likely that they will face more interruptions in their life with a view to the defendant taking steps to collect on the judgement. If the plaintiff has assets, this would pose a problem. If a plaintiff lacks assets, as seems to be the case for Nguyen, (but not necessarily as clear respecting his Guardian of Property or Litigation Guardian who may yet find an unwelcome surprise in this case), then this could also be a consideration when determining what to do with the ATE proceeds.
 Section 132 of the Insurance Act, RSO 1990, c.I8 states:
Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person’s liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.
 Section 258 states:
Any person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even if such person is not a party to the contract, may, upon recovering a judgment therefor in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of the person’s judgment and of any other judgments or claims against the insured covered by the contract and may, on the person’s own behalf and on behalf of all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied.