Unsuccessful parties to litigation will normally have to pay a proportion of the winner's costs as well as their own. 'After the event' insurance (ATE) offers a safeguard against all or part of this risk.
Subject to the level and terms of indemnity, ATE insures a proportion if not all of a losing party's potential liability for costs to an opponent. The insurer's investment in the outcome of the litigation can be reflected in it having to be consulted in connection with the claim.
A party should also consider whether it has any existing insurance for legal costs – known as 'before the event' insurance (BTE). The existence of BTE may affect the ability to recover an ATE insurance premium from an opponent in the event of success.
What cover is available?
ATE is available to meet either the other side's costs only, or the other side's costs and an element of your own costs. It can also include costs incurred before the policy was taken out. ATE is usually taken by claimants, but occasionally may be suitable for defendants.
ATE cover does not extend to the insured's own management time and expenses, but may cover an element of expenses incurred by solicitors in investigating and pursuing the claim – for example, counsel fees.
At what stage should ATE be purchased?
ATE can be purchased before proceedings have been issued and at any time after they have been issued, although the later the policy is purchased the more expensive the premium is likely to be.
What is the procedure for purchasing ATE?
ATE is available through specialist brokers and insurers. Your lawyer will complete a proposal form and their risk assessment of the case, addressing its merits and the likely costs. The proposal form will attach any pleadings, counsel's opinions or other relevant documents. The insurer will then assess the information provided and decide whether to take on that risk and at what cost.
Can the level of cover be increased as a matter progresses?
Subject to the circumstances of the matter and the type of policy entered into, it may be possible to increase the level of cover in stages with an additional premium being incurred on each increase in cover.
What level of premium is payable?
The level of premium payable depends on the type and level of cover sought and assessment of the risk. It can typically be 30% to 50% of the sum insured, or can be calculated as a percentage of the costs incurred at the date a claim is successfully concluded by negotiation or court proceedings.
When is the premium payable?
Payment is usually deferred until the outcome of the case is determined, and only payable if you win.
Is the premium recoverable if the case is won?
Subject to the insured having an entitlement to costs from an opponent, in principle the premium payable to the insurer will be recoverable from the losing party. However, the level of recovery will depend on the reasonableness and proportionality of the insurance premium and ATE cover.
Be careful on settlement: if the claim is settled for a sum without or including costs, the premium will be payable out of the settlement proceeds.
Damages recovered and costs payable under ATE
In the event of the insured recovering damages but having to pay all or an element of its opponent's costs, these costs may only be contributed to by the insurer for the amount that the costs are greater than the damages recovered. This can happen if the insured does not respond promptly to an opponent's Civil Procedure Rules Part 36 offer 'without prejudice except as to costs'. In these cases the insured's damages may, subject to the terms of the ATE policy, have to be taken to pay the opponent's costs before the insurer will pay out under the policy.
Are there other costs involved?
In respect of substantial cover, some insurers may very occasionally require an application fee to be paid to cover the cost of the insurer carrying out a risk assessment on the case before deciding whether or not to provide cover.
Funding and the future
The Government is considering changes to the way litigation is funded, and to what costs will be recovered from a losing party. It has published a draft Bill that is likely to come into effect late in 2011 or in 2012 following a period of consultation in parliament. The Bill proposes that ATE premiums and CFA success fees will no longer be recoverable from opponents and widens the scope of damages based fee agreements (contingency fees).