After the event insurance (or ATE for short) is just one aspect of making sure your claim is funded in a way which works for you. Let us talk you though your options and help reduce your risk.
Where a claim exists there is often a need for solicitors to become involved. This can be because of their expertise in a specific field, their knowledge of civil procedure in the court system or purely by reason that they are better equipped to manage such claims – which are often full of deadlines for specific steps to be taken and require documents to be drafted and filed in specified forms.
As a result, litigation proceedings will almost always lead to legal costs being incurred by both sides.
There are exceptions to this general rule – but they are not always the best course of action in the longer term:
- A company (if it is large enough) can use its own in-house legal team. The disadvantage of this is that they do not often have the necessary experience of litigation practice and procedure and, more importantly, will have no professional indemnity insurance to rely on in the event a mistake is made (for example a deadline missed, which can lose a case purely for a procedural breach).
- A party to a claim can run it themselves – acting as a “litigant in person”. Whilst the advantage of this is that legal costs are minimised, the disadvantage is that you will have little or no experience of legal proceedings and suffer similar difficulties as described above. Furthermore you could be running a considerable cost risk and tying up huge amounts of management time.
Accordingly, where a claim is to proceed to court, in almost all circumstances both of the litigating parties should employ solicitors in order to maximise their chances of a successful outcome.
Who pays solicitors’ costs?
Unless a claim is issued in the small claims court, court procedure provides that in the event a claim is successful or unsuccessful then the losing party must pay the other side’s legal costs.
- in recent years the concern as to the extent of such legal costs have led to grave concern as to how such costs can be prevented from impacting too heavily on the actual proceedings;
- this has led to legal changes to funding arrangements between the client and their solicitors and the appearance of third party litigation funders.
Once an order is made, the court will normally make an order that the losing party pay the other side’s legal costs, either in a fixed sum immediately payable or with a sum require to be paid on account, with the total costs to be assessed in a separate set of proceedings.
The losing party will almost always pay these costs – comprising their own solicitor’s legal costs and their opponent’s legal costs. Accordingly, even if a losing party has a funding arrangement in place, this will not protect against their liability for their opponent’s legal costs.
After the event insurance
After the event insurance (“ATE”) is sometimes referred to as adverse costs insurance. It is insurance against any order for legal costs made against you as a result of litigation proceedings.
- the insurance works to insure you against any liability for your opponent’s legal costs up to a specified sum, with a premium becoming payable in the event the insurance is not called upon and you are successful.
- however, and most importantly, it will not insure you against the cost of a judgment debt.
It is more commonly taken out by claimants but, subject to assessing the prospects of success, may be available for defendants.
Structure of after the event insurance
The structure of an after the event insurance policy is that the insurer will need to consider an initial risk assessment and will then agree a limit on the amount of legal costs it will cover. The limit agreed will determine the ultimate cost of the insurance, which is usually calculated as a percentage of the sum of legal costs covered under the policy.
- from the date the policy is taken out, there will be no immediate cost but the insurance premium will be payable upon conclusion of the proceedings.
- if your claim (or defence) is successful, and you are not liable for any legal costs, then a premium equal to a proportion of the sum claimed will become payable by you.
If you lose your claim (or defence) then no premium is payable and, subject to your solicitors’ negotiating the final costs order (or the order for costs being summarily assessed as described above) then the insurers will pay this sum to your opponent, instead of you, on account of your liability for legal costs.
Less expensive ATE policies exist whereby the claimant pays the premium at the very start, prior to commencement of proceedings. These can be a lot less expensive but still remain a cost, whether you win or lose.
These policies are appropriate for those claimants who require certainty of such insurance cover and can manage the lower insurance premium cost arising. As a typical example, such a policy may be appropriate for funding insolvency practitioner claims or any other commercial litigation claim where some funding is available to manage costs risks.
In certain circumstances, ATE Insurance can also insure against your own solicitors costs. However, this will serve to increase the cost of the insurance premium.
Recoverability of ATE premiums
Until April 2013, the fee uplift on a conditional fee agreement (see here) and the ATE insurance premium were recoverable as part of the legal costs payable by the losing opponent.
However, for all policies taken out from 6 April 2013 (subject to certain exceptions) ATE insurance premiums cannot be recovered as a cost of legal proceedings.
- as this premium is not recoverable from the other side, then this will act to increase the costs of the proceedings and so after the event insurance is only appropriate for certain types of claim and acts to a certain degree in a similar way to a contingency fee payable under a damages based agreement with a solicitor.
- if the premium will be repaid from the judgment sum recovered, or the defence (or claim) will provide a non-monetary benefit which is worth the ATE insurance premium, then it may be appropriate to take out such insurance.
Additionally, when seeking the assistance of a third party funder, they will often include after the event insurance as part of their funding package and thus it is often quite attractive to seek assistance from a third party funder.
At Francis Wilks & Jones we regularly deal with ATE insurance in respect of litigation proceedings and we are always willing to discuss such options on an initial no obligation basis.
Please call any member of our commercial litigation team for your consultation now. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you. Whatever your legal funding questions – we can help.