Dispute Resolution Insurance

(“ATE”) insurance, also known as ATE or adverse costs insurance is designed to insulate claimants from having to pay costs and disbursements in the event they lose their action.

It can provide reassurance that pursuing a case will not end up adversely affecting a client’s business or personal wealth—especially if they take action against an opponent who has significantly greater resources. It can also send out a message that the case is strong because an insurer is prepared to back it.

In most cases, the majority of the premium can be deferred and payable only if the case wins and there is a recovery.

Security for Costs

This is a solution to ‘upgrade’ an ATE insurance policy via the provision of a deed of indemnity or more commonly, an anti-avoidance endorsement.

It typically provides the following:

• The ATE policy cannot be avoided for misrepresentation or nondisclosure, unless fraudulent.
• The proceeds of the insurance cannot be diverted elsewhere and are payable directly to the defendant.

Anti-avoidance endorsements can be particularly useful for clients who are largely illiquid or for liquidators with a limited fighting fund or for those clients litigating in a jurisdiction where they are not resident.

Cross Undertakings as to Damages

This cover is for clients contemplating providing a cross-undertaking as to damages. Claimants are required to give a cross-undertaking to the defendant essentially indemnifying them for any proven losses as a result of an injunction, in the event the injunction was found to be incorrectly applied.

It can be particularly useful for clients who are largely illiquid or for liquidators with a limited fighting fund, who for good reason need to pursue a freezing injunction.

The uncapped nature of many cross-undertaking means that the sums involved could be unaffordable for some claimants. By using insurer capital, claimants can potentially remove this obstacle in a relatively cost-effective manner.

Not only does this satisfy the court where claimants lack financial resources but, in circumstances where the court orders fortification of the cross-undertaking it lessens the impact on cash flow and is preferable to placing funds into court or purchasing a bond.

These are brief product descriptions only. Please refer to the policy documentation paying particular attention to the terms and conditions, exclusions, warranties, subjectivities, excesses and any endorsements.

Capital Protection Insurance and Work In Progress Insurance are designed for stakeholders in a dispute where their remuneration is directly linked to the outcome of the case.

Capital Protection Insurance insures some or all of the cash deployed (usually by a litigation funder) in bringing legal action in the event the case is unsuccessful and they are unable to yield a return.

Work In Progress (WIP) Insurance covers some of the firm’s accrued but unbilled fees if the case is unsuccessful.

This cover is suitable for any law firm, litigation funder or insolvency practitioner whose financial outcome is predicated on success in the case. It allows them to take on this type of work knowing that the potential downside of losing the case is mitigated.

Contingent Risk Insurance is a broad title that essentially captures any risk that can be evaluated for legal uncertainty. It is often used in the context of a transaction such as an M&A deal, the release of capital or the distribution of funds.

In circumstances where the intended transaction is being held up or is at risk of collapse due to a legal uncertainty, the insurance policy can bridge the gap.

Contingent Risk Insurance scenarios include circumstances where:

• A Judgment or Award made by a judicial body or Tribunal is overturned on appeal, thus causing financial harm to the Judgment or Award holder.
• A contingent liability, attached to a legal event, needs to be removed from the company’s balance sheet to facilitate a transaction, e.g., threatened litigation or a catastrophic outcome in live litigation.
• Professional advice has been taken and followed but there is a risk that despite following best practice, a legal uncertainty still exists, e.g., tax advice has been taken and followed but the company still wishes to be protected in the case of an investigation by a tax authority.
• A fund manager, security trustee or insolvency practitioner wishes to make a distribution of funds but is prevented from doing so due to a legal uncertainty.
• There is a possibility that a judicial body or Tribunal make a higher than expected damages award meaning that the insured may need to find funds they have not provisioned for.
• There are legacy issues that need to be isolated from company assets.
• The risk of a change in law or regulations is adversely affecting the company.

This cover ‘locks in’ a favourable judgment or award in the first instance and protects clients against a less favourable award being made at appeal, giving a degree of financial certainty. With policy limits up to $900 million, it works for both plaintiffs and defendants, not only in the UK but those pursuing or defending claims in the US, Continental Europe, Canada, Australia, the Cayman Islands and the British Virgin Islands.

For plaintiffs, it enables them to secure the monetary value of some or all of the award. Whilst for defendants, who have a no or reduced liability funding, they are able to release the contingent liabilities from their balance sheet which otherwise would have to be provisioned until the appeal was concluded.

APAD insurance covers the risk of a Sovereign State being unwilling or unable to pay an arbitration award made against it. It can make the volatility of political uncertainty more certain and give greater confidence when involved in a dispute with States or State-backed enterprises. Insurers will consider claims under most international arbitration forums.

It is not just suitable for trade with emerging economies or particular sectors, but also for:

• Investors and other commercial entities transacting business with States or State-owned entities that find themselves in a dispute or have recently received an award in their favour.
• Those concerned with political instability, nonpayment or delays in settlement and/or the potential costs of enforcing an award.