After the Event (ATE) Legal Expenses insurance has been rapidly evolving, with positive implications for both policy wordings and the limits of indemnity.
In fact, the market is seeing a shift in focus from small personal injury and small commercial ATE Legal Expenses insurance towards highly complex commercial cases. Clients from larger law firms are requesting litigation funding and insurance to manage their risks. The purchase of such insurance is no longer seen as purely binary. For example, some clients buy 70 per cent coverage for their opponents’ costs exposure and 30 per cent of risk sits within their tolerance and risk appetite.
ATE Legal Expenses is not the only insurance solution available in the armoury for claimants, defendants, law firms or funders. A few examples of risks where clients have utilised the insurance market to hedge and mitigate their risk include:
- Single and multi-claimant actions in both the English High Court and Competition Appeal Tribunal – with the issues of opponents’ costs liability
- Injunctions in Asia and the UK – with the issues of cross-undertakings as to damages
- Appeals in the US and UK courts – with the issues of losing the claimant’s award
- Tax uncertainty risks – highly relevant as the judgment in Development Securities plc v HMRC was decided in HMRC’s favour.
At individual case level, whether an arbitration against a sovereign state or an insolvency issue in the Australian courts, a suitably experienced broker will work with clients to define the risks, quantify the range of each one, understand the client’s appetite for risk and challenge the use of insurance solutions to mitigate.
Market capacity grows
So, if scope of the solutions is broadening, is the insurance market’s capacity growing? Yes. Our dispute resolution team alone has accessed A-rated insurers globally to secure: ATE Legal Expenses insurance to indemnify the claimant(s) for their opponents’ costs liability, with multimillion-dollar limits, one of which is believed to be the largest single policy limit ever deployed in the industry; one of the largest arbitration default insurances of over $50m; one of the largest cross-undertakings placements of $25m; and tax uncertainty insurance in excess of $70m.
Meeting client needs
Market solutions and policy wordings are both changing to meet bespoke client needs in several ways:
- For ATE Legal Expenses insurances it is no longer acceptable to have numerous exclusions all starting with the word ‘any’;
- Class actions and multi-insured actions bring issues of severability of action and severability of proposal – issues that tailored policy wordings can address;
- Where settlement is lower than expected contingent premium can exceed the award; it is possible to get insurers to agree that they will not require payment of more than the actual recovery;
- The Insurance Act 2015 for non-consumer cases defines the knowledge pool of the insured. Breach of material fact is a key issue in the rare event that insurance fails to deliver; this risk can be mitigated. Appropriate wording can reduce the insurer’s ability to avoid or limit policies by tightening the scope of the knowledge pool and narrowing insurers’ remedies for breach; and
- In tax uncertainty issues, no longer is coverage limited to award and defence cost – it can now be extended to include penalties and interest.
In conclusion, from the smallest cases to the largest, from well-known risks to more esoteric ones, the insurance market is a mitigation measure worth exploring, ensuring policy wordings are fit for purpose and address clients’ bespoke requirements.