Damages based insurance

Damages based agreements, or contingency agreements, are arrangements between a solicitor, direct or with a third party funder, and his/her client to enable the funding of the solicitor’s legal fees on the basis of a fixed percentage of what is recovered.

This is a recent product brought into existence in the UK in 2013 as a result of huge legal fees sought via conditional fee agreements which could sometimes dwarf the actual claim itself. The introduction of damages based agreement is intended to balance out justice by funding excess legal costs from the award or judgment at court, rather than just adding a huge burden to the other party’s liability.

Risks of damages based agreements

Unfortunately for a solicitor, a damages based agreement provides a lot of risk with virtually no reward even if judgement is obtained, as a recovery also has to be made.

• it is also a relatively new type of legal funding that a majority of solicitors are not familiar with, which breaches many principles of litigation funding and can take years to recover.
• there are also sensitive issues that occur where evidence is introduced which changes the solicitor’s view of the strength of a case, but not necessarily the client’s (who may want to continue on the basis s/he may have “nothing to lose”).

It is this lack of control and risk to the solicitor and their business which has limited the use of, or rather their willingness to enter into, a damages based agreement.

Insurance

However, from May 2017 a new insurance product was introduced to alleviate such concerns.

In summary,

• it became possible to obtain insurance for your solicitor’s costs to enable them to act on a damages based agreement.
• this was announced as a “game changer” in the press and will provides considerable comfort to a solicitor with regard to the risk v reward calculation, when faced with a client who has a good interest or claim to realise but no legal funding.

The process is that, once a solicitor enters into a damages based agreement, if it is subsequently unsuccessful (perhaps at court in subsequent attempts to enforce judgment), then the insurer will pay a substantial amount of the solicitor’s fees. This could be as much as two-thirds, although this is largely dependent on the policy taken out.

As a result, the risk to the solicitor is greatly lowered as they face (as a worst case scenario) a recovery of their operating costs during the course of such proceedings.

Client benefit

With such insurance available, from the client’s perspective they now have an ability to instruct a solicitor on more contentious or more difficult matters, with the added comfort (for the solicitor) that if they are unsuccessful in realising such an interest then a good portion of their costs will be paid.

• solicitors should now be more willing to enter into a damages based agreement where this insurance is taken out, and
• accordingly more clients will have access to this type of arrangement where previously they may have had no access to legal advice or assistance.

This should change the attitude of solicitors described above and lead to a considerable increase in the use of such arrangements and the access to justice provided to those with less resources.

At Francis Wilks & Jones we can assist with all aspects of such insurance and funding of legal 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. We have the expert team to discuss all types of legal funding options with you.