After The Event Insurance
Where a claim exists there is a need for solicitors to become involved, whether it be by reason of their expertise in a specific field, their knowledge of civil procedure in the Court system (which is extremely complicated) or purely by reason that they are better equipped to manage such matters, which are often full of deadlines for specific steps to be taken and require documents to be drafted and filed in specified forms.
Accordingly, all litigation proceedings will almost always lead to legal costs being incurred by both sides. The alternatives available are as follows:
- For a company to use its own in-house legal team. The disadvantage of this is that they may not 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).
- For a party to act as a litigant in person. Whilst the advantage of this is that legal costs are minimised and, as the litigant in person, you will almost certainly have direct experience and knowledge of matters (which a solicitor will not possess), the disadvantage is that you will have little or no experience of legal proceedings, suffer similar difficulties described at 1. Above and this may also provide a considerable (and potentially costly) distraction from your business or occupation.
Accordingly, where a claim is to proceed to Court, in almost all circumstances both of the litigating parties will have to employ solicitors.
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, and 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
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 on 020 7841 0390. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.