There are a variety of lenders out there in the marketplace who are willing to make litigation loans, particularly to motor vehicle accident claimants with strong cases on liability. Can the interest paid on these loans be recovered as part of the compensation owing from the defendant? In other words, can the defendant be made to pay the cost of the loan?
We're not aware of any cases dealing with this issue in Newfoundland and Labrador, but there are enough court decisions in other provinces that a few generalizations may be made.
First we caution victims of accidents who have valid claims, that claiming a right to something and actually getting it by way of settlement are two different things. You can expect a lot of resistance on the part of the defendant insurance companies to the idea of paying the interest on loans which are taken out in the course of suing them.
Nevertheless, looking at the cases around the country, if the cost of a litigation loan for personal expenses and disbursements is to be made recoverable from a defendant, attention should be paid to the following:
- the expenses must be reasonable and necessary and incurred as a result of the defendant’s negligence, and this must be documented;
- it is a good idea to give notice to the insurer that a litigation loan is being sought for such expenses, and to set out projected financing costs which will accrue to the borrower plaintiff;
- the statement of claim filed in court should itemize interest on litigation loans as a claim item;
- loans should be obtained from the least expensive sources of financing, such as banks and other traditional sources of credit, and it should be documented that less expensive credit was unobtainable;
- attention should be paid to staging the loan in order to reduce interest, ie. taking the money at different points in time; and,
- terms provided by a variety of litigation lenders should be considered – buyer beware!
Remember, most people with good legal claims want their cases to settle, not go to trial, and some defendant insurance companies simply will not want to make payment for the expenses of a litigation loan taken out to sue them. If a defendant refuses to pay on this item of claim, the cost of the loan ends up coming out of monies the victim of injury receives on account of other losses.
The litigation loan strategy is a strategy to be pursued only when there is no alternative. But if access to justice requires a litigation loan, it should be pursued while putting the measures in place, as outlined above, to maximize the chance of recovering the expense.