Click on your business type in the menu bar below to find specific insurance and funding information for you

Tapping into potential – a decade of CFAs and ATE insurance in commercial litigation


By David Pipkin Director, Underwriting Division and Matthew Pascall, Senior Underwriting Manager

(Estimated reading time: 8 minutes, 36 seconds)

This article was originally published in the August 2019 issue of ‘Litigation Funding’ magazine.

Back in 2009, Litigation Funding published an article entitled ‘The case for business. Are commercial litigators finally waking up to CFAs?’ which examined the market’s interest in after- the-event insurance and conditional fee agreements for commercial cases, and the prospect of ATE insurers playing an integral role in the development and funding of commercial litigation.

Where Are We 10 Years On?
Despite government reforms, ATE insurance and funding products have continued to have influence in the commercial litigation sector. Following Sir Rupert Jackson’s Review of Civil Litigation Costs, parliament legislated to remove the recoverability of ATE insurance premiums and CFA success fees, save for a short list of exempt types of cases. These developments have not deterred clients wanting to mitigate the risks of litigation. Appetite persists for law firms to risk some or all of their fees and for a product that helps hedge the risk of having to pay the other side’s costs.

Many insurers continue to focus only on personal injury cases, and are not able to consider the more technical commercial claims. This gap is being filled by an increasing number of litigation funders and well-established insurers seeing opportunities across a wider financial range of commercial claim types.

From a regulatory perspective, while some third-party funders adhere to a code of conduct, others do not; and the market, as it was 10 years ago, is not fully regulated.

Lower Value Commercial Cases – No Easy Solution
A decade on, an issue remaining for clients and insurers is how ATE insurance and funding products can be adapted for lower value commercial cases. Where a claim is worth less than £50,000 it can be difficult for the economics to work in a way that provides for payment of the ATE insurance premium, a success fee (if applicable) and the client’s damages – the reason for the case being brought in the first place.
The problem is even more present for defendant cases. This can also be an issue for cases where the claimant is seeking declaratory relief – these parties to litigation are at a costs risk like any other party, but they have no damages pot to fund their insurance. It is clear that a client without the requisite resources may find it difficult to fund the premium.

The Direct Approach
The 2009 article also raised the prospect of ATE insurance and funding providers approaching in-house lawyers and board members of companies. This is instead of, or as well as, approaching law firms. The established routes to market for insurers have become fragmented, with an increasing number of different types of intermediaries offering funding options. Third-party funders are seeking to stimulate demand with direct approaches to potential commercial clients.

ATE Insurance and Litigation Funding – an Evolving Relationship
Solicitor Tony Guise, now director of Limited, observed in the original article that the increasing interest in third party funding could help an otherwise under-developed ATE insurance market. But he argued that the unresolved ‘question of funder exposure’ in the wake of the 2005 case of Arkin v Borchard Lines Ltd [2005] EWCA Civ 655 was going to be ‘a big determinant in the way that market develops, which in turn will affect the extent to which CFAs are used in the future in commercial litigation’.

In the intervening time, Snowden J has handed down the recent judgment in Davey v Money & Ors [2019] EWHC 997 (Ch). This decision has sent shockwaves through the funding market as a funder is now potentially liable to pay more in adverse costs than the amount they invested in a claim.

In consideration of this judgment, Tony Guise said: ‘In 2009, I spoke to this publication about the effect of Arkin. Nothing that has happened since has caused me to alter the view I expressed then. In fact, the recent Davey case makes my views more relevant now than they were then.

‘The free-for-all of costs exposure that has been unleashed by the recent decision in the s.51 proceedings in Davey will have significant effects. Firstly, funders will require closer analysis and monitoring of the cases they fund – possibly via a collaborative platform. Second, risk assessments for funders may be subject to much greater scrutiny than hitherto. Finally, as I observed 10 years ago, this will provide a further boost to the ATE insurance market.’

With third-party funders now at greater risk, ATE insurance is likely to stand out more as the fundamental part of any offering. At this point, there are five immediate questions that practitioners and funders must consider for funded cases arising from the Davey decision.
1. Does your client have ATE insurance? ATE is available for individuals as well as publicly listed companies.
2. Is the amount of that cover sufficient for the risk, or does it need increasing?
3. Is the insurance from an A-rated insurer?
4. Do you have a valuable relationship with an insurer?
5. Have you chosen the insurer with care?

A CFA is not the only way
In the 2009 article, David Pipkin observed that: ‘The market is set for a shake-up following the Gloucestershire County Council case’ (where the Court of Appeal allowed for discounted CFAs with a success fee). ‘There was tacit approval of CFAs in commercial cases… You think of CFAs as being for individuals, for the small guy, but this was a large local authority being advised by its lawyers to run litigation on a CFA’ and ‘Perhaps just as crucial was the reminder that CFA does not necessarily mean “no win, no fee”, which has always been a major disincentive in larger cases. Commercial litigators are likely to be far more attracted to “no win, some fee, and a much larger fee if you win”. They also tend to forget that insurers will not always insist that they are on a CFA.’

Indeed, CFAs and – in particular discounted CFAs – do feature frequently in the cases submitted to us for insurance. We are routinely asked for cover of up to £1m or more. These cover a diverse range of claim types, from niche commercial firms, international firms and high street practitioners. However, many cases supported with ATE insurance and funding do not include CFAs.

For some practitioners, partnering a CFA with an ATE insurance policy is in fact no longer an option. Tim Constable, partner at Dentons, a leading claimant professional negligence firm, observed: ‘For a number of years prior to the Jackson reforms, CFAs were the funding arrangement of choice for many lenders. Professional negligence claims lend themselves to CFAs because the issues are confined, and the facts tend to be similar. Use of CFAs and ATE policies declined dramatically after the Jackson reforms, with most if not all lenders preferring to self-finance and insure. However, a CFA backed by ATE insurance continues to be of critical assistance in accessing English justice. It is here to stay.’

Crowdfunding may well prove valuable in enabling claims against public authorities, including judicial reviews and claims against the police, to progress on an insured basis. This appears in part to be a response to the withdrawal of legal aid and implementation of qualified one-way costs shifting.

ATE insurance and CFAs – the Practitioner’s View
Jonathan Sachs, a commercial litigation partner at Irwin Mitchell, provides these observations on a decade of developments: ‘The Jackson reforms and its costs budgeting regime has not reduced fees but, as commercial litigators on the ground predicted, inflated them. The recent practice direction in the Business and Property Courts has yet further inflated costs. The need for ATE insurance is now even greater.

‘With the abolition of CFA success fees and ATE insurance recoverability, third-party funding is now often preferred by solicitors over CFAs. However, it is difficult to make the combination of unrecovered costs, unrecovered ATE insurance premiums and unrecovered funder success fees work unless a case has a value of £1m or more. This leaves a huge market for CFAs. The effect of the Jackson Reforms and the abolition of the recoverability of ATE premiums is that solicitors do invariably act on CFAs, but in practice it is a rare case when the uplift is recovered from a client on any settlement or judgment.

‘The further problem is that the rules relating to proportionality and costs budgeting mean that it is often difficult to make a claim for under £100,000 work at all, even where there is no uplift, without the ATE and costs eating up vast amounts of the damages. Therefore cases of lower value need to be very carefully considered.’

There are strong signs indicating that ATE insurance is continuing to flourish in commercial litigation, but a lot of unrealised potential remains. With the growth of third-party funding and the emergence of publicly listed funders and law firms, commercial litigation has become a commodity anyone can buy into. ATE insurance has always been an integral part of this package, but with the emergence of the Davey judgment, ATE insurance has been refreshed as not only a key consideration for businesses and individuals that bring and defend cases, but also for the company funding them.

The challenge for some practitioners is to decide whether or not they confront the misconceptions about the industry and take the opportunity to advise their clients about products that will help provide access to justice. Arranging and explaining ATE insurance and funding options to clients remains a key part of a solicitor’s role. There are huge benefits to having a strong relationship with a proven insurer and funder with whom you have direct and regular engagement.

Specifically, what appears to be holding practitioners back are misconceptions about price, whether a CFA is necessary, and concerns about the cost of an upfront premium. ATE insurance and funding is appropriate for all types of client, and no longer just for David in his battle against Goliath. ATE insurance exists to hedge risk, whether you are an international bank or an individual. Why would you advise your clients to take the full risk of paying an adverse costs order? Regardless of whether it is money lost to shareholders or a pension fund, money is money.

If you have a view on any of the above topics that you would like to discuss with us, please contact David Chase, our Deputy Underwriting Manager in the Commercial team via email to or call 01483 577877. We look forward to hearing from you.

David Pipkin

Non-Executive Director
Read articles by David Pipkin

David Pipkin

David was Director of Temple’s Underwriting Division for 14 years during which time he supported Temple’s coverholders with his exceptional knowledge, expert guidance and friendly countenance.

He is now a Non-Executive member of the board supporting the strategic direction of the company and attending key events and meetings with our customers.

David has spent over 40 years as a Legal Executive specialising in personal injury litigation. Initially, he was a claimant litigator pursuing leading industrial accident and disease cases.

As an Associate at Davies Arnold Cooper for over a decade he managed a team of lawyers and acted for defendants in personal injury and general insurance litigation. In this role, he became involved in the early development of the ATE market, assisting the ABI in their involvement in the Court of Appeal test cases such as Callery v Gray.

As the London representative for FOIL he was involved in the liability insurers’ approach to ATE and worked with the government and judiciary in several key consultations. He was a member of the CILEX National Council for over 15 years and was CILEX President in 1995/6.


Read articles by David Pipkin