Litigation Loans, Advanced Payments

When considering the commencement of a lawsuit, a major deterrent for a potential plaintiff is the potential of financial uncertainty. A litigation loan, or lawsuit loan, is a tool to aid in covering the costs of a lawsuit. These loans are most often used in personal injury matters because the injured person is likely unable to work at the capacity they previously did, or at all.

A litigation loan can be requested at any time during the litigation process prior to a settlement. These loans should only be obtained when the outcome of the lawsuit is likely to be in the plaintiff’s favour, and when settlement will be the likely outcome. This puts the plaintiff in a confident position that they will be able to repay the loan.

An individual seeking a litigation loan must be aware that the interest rates attached to these loans are substantial. It is vital to read the terms and conditions tied to the loan to be sure you understand what kind of agreement you are entering. The interest rates on these loans can easily at least double the amount owing by the time of settlement.

In the recent case of Davies v. The Corporation of the Municipality of Clarington (2021), ONSC 6449, the plaintiff sought to recover the interest that had accrued on his litigation loans. While the Court rejected this award, the Court did outline the criteria for when a defendant may be liable to pay for the interest on a litigation loan as a disbursement.

1. The Plaintiff shall disclose the existence of the litigation loan to the defence;

1. Note: the actual loan documents are likely subject to privilege and are not producible.

2. The Plaintiff shall consider any and all other methods of funding of the costs of a disbursement before committing to the onerous interest costs of litigation loans;
3. The Plaintiff shall obtain independent legal advice prior to entering into a litigation loan, especially when a Plaintiff is a party under disability;
4. Where the litigation stems from a motor vehicle accident, the Plaintiff shall seek an advanced payment from the defendant under s. 258.5(2) of the Insurance Act.

In motor vehicle accidents where the defendant has admitted liability, or where a realistic appraisal of the facts has been made, s. 258.5(2) of the Insurance Act provides a mechanism for an advanced payment. Advanced payment is intended to cover items such as medical expenses, lost wages, or attendant care during the course of the litigation. The advanced payment offsets the ultimate damage award or settlement monies in the end. While it is often unlikely that an insurance company will agree to an advanced payment, it is an important step to take if you are seeking repayment of your litigation loan interest.

In making this request for an advanced payment, a plaintiff should provide a statement to the defence advising that the plaintiff will be obtaining a litigation loan, and if the defence refuses to provide an advanced payment, the plaintiff will seek the interest accrued on the loan as a disbursement.