Commercial Litigation Insurance – FAQ’s
We add your questions about ATE/litigation insurance to our website – the latest ones are at the top.
Traditional legal expenses insurance is often known as Before-The-Event or ‘BTE’ cover. Litigation insurance is used by solicitors and is commonly known as After-The-Event or ‘ATE’ insurance. The latter is the technically correct term but your clients may better understand ‘Litigation Insurance’. Litigation insurance is a bespoke policy put in place with the specific objective of covering the adverse outcome in a piece of litigation, including insurance for opponent’s costs and own disbursements incurred on behalf of the client. It is unique since the insurance policy is only entered into after a dispute has arisen.
The applicable IPT amount will be charged to the client – based on the country they reside in outside the UK e.g. EU/EAA. If there is any doubt about which IPT amount will be charged, please approach us with this information at the outset of the application process so that we can consider what the applicable IPT is. If they reside outside the UK/EU/EAA area, then no IPT will be charged.
If there is a counterclaim at the outset, or it arises later, firstly you would need to notify our underwriters. We will then with your assistance review the merits of bringing that counterclaim or defending against it. This is required before we can make a decision on whether or not to provide cover.
What we often experience is that opponents make a lot of ‘noise’ threatening a security for costs application but, for whatever reason, an application is never actually made. We believe that Temple’s litigation insurance policy will be regarded as being sufficient by a judge, however we are also prepared to put a proposal to our Board on the client’s behalf in respect of the issuing of an anti-avoidance endorsement on the basis that the insurance premium would be increased.
Litigation insurance is often misunderstood. It is used once a legal dispute arises and, in the event your case loses, it provides cover to the client for both any adverse costs claimed and any own disbursements incurred. If the client loses their case, they do not pay the premium since it is self-insured by the policy. Temple’s litigation insurance premiums are deferred until conclusion and conditional upon success. Therefore in the happy event that the client wins their case they would pay the insurance premium.
We would encourage you to propose cases to us at the outset without a Counsel’s opinion, since it is not a pre-requisite. Ideally, we would like a case summary from you – to include the background facts of the case, the strengths and weaknesses of the case, how any weaknesses might be overcome, and your overall view of the merits.
Litigation insurance is a one-off insurance policy that allows a party (usually the claimant) to transfer the risk of losing their dispute to the insurer rather than bear it themselves. The insurance policy will respond to the opponent’s legal bill in the event that they have been unsuccessful in their disputes.
Whilst the main function is to pay the other sides legal bill on behalf of the client in the event that their legal action has failed it can also cover other costs of the dispute.
For example, litigation insurance can also pay one’s own disbursements that have been incurred as a result of having to pursue the claim such as Court fees and expert fees etc. This means that more than just the risk of paying the other sides fees can be off set. Clients can also offset some of the risk in terms of their own capital.
Litigation insurance can also respond prior to the conclusion of the legal action. For example, our ATE policy also covers adverse costs orders in respect of interim applications.
Litigation insurance is generally for claimants pursuing a claim as it provides them with protection in the event they lose. However, it can also be used by defendants. Here at Temple Legal Protection we can and do consider cases where a defendant requires insurance.
Litigation insurance is used by a broad cross section of people. It is used by insolvency practitioners, clients with little funds who cannot afford the consequences should they be unsuccessful in pursuing their dispute or generally impecunious clients.
However, litigation insurance is also being frequently used by corporate clients, wealthy individuals, essentially any commercially savvy party to a litigation that does not want to take any unnecessary risk.
The cost of litigation insurance will depend on how much cover is sought. The more insurance required the more expensive the premium will be. However, we typically offer staged premiums, meaning that the cost of the premium is linked to the stage of proceedings where the matter settles. Therefore, if a matter settles at trial, it will be more expensive than if it had settled once a defence had been filed.
Our litigation insurance premium is also typically linked to a percentage of the damages recovered but will always be capped to a maximum amount. Therefore, clients will only ever pay a proportionate amount for their litigation insurance policy with us.
Following changes to the law introduced in 2013 the client now has to pay their litigation insurance premium. This is usually deducted from the damages recovered. However, our insurance premiums are always fully deferred until successful conclusion of the matter. If the matter is unsuccessful then the premium will not be payable, but the policy will still respond to the claim for the insured amounts.
ATE provides numerous benefits to clients wishing to pursue a legal action. These include, but are not limited to:
- Claims can be pursued to their fullest extent.
- Removes the risk of having to pay the opponents legal costs if the dispute is pursued unsuccessfully.
- Can mitigate the clients own expenditure on disbursements etc.
- Can provide protection from interim costs orders.
Because there is a 40% chance that your client could lose the case and have to pay the other side’s costs and their own disbursements. For example if the other side’s costs for defending the claim come to £100,000, your client will have to pay those costs. With litigation insurance cover in place, the insurer will pay those costs and any own disbursements and in the event the action does settle in the client’s favour, the premium is not payable since it is self-insured under the policy.
In addition, if needed, the business owner is also personally wealthy enough to meet any liability to pay the other side’s costs. Is the client company or in fact the business owner really prepared to waste the difference between the insurance premium it will have to pay if, but only if, its claim succeeds and the full amount of the other side’s costs, which their business will have to pay if its claim fails? In the question above, this would be £100,000.
No. Our products and services are available regardless of the type of retainer you have with your client.
As a case progresses, providers of litigation insurance such as Temple Legal Protection become less willing to insure cases because the risks involved become greater and cases are much less likely to settle as they approach trial. The best time to propose a case to us is at the stage when the merits of the case can reasonably be assessed, which can be either pre or post issue of court proceedings.
We can provide a policy to your client on behalf of the insurer before the claim itself is issued and, by choosing a staged premium, your client will inevitably benefit from a lower premium if their claim settles at that stage. This also gives the client the certainty of having a policy in place since, if they delay, they may not find a provider willing to take on their case at all.
Is your client really prepared to put their business at risk based on the outcome of their claim? As you know, once they begin legal proceedings, they may be required to show the potential amount of their opponent’s costs they might have to pay in their accounts as a contingent liability. If they have litigation insurance cover in place, this helps ‘level the playing field’ – as the insurer will meet any such liability and your client will be left with a much healthier balance sheet.