After the Event (ATE) Legal Expenses insurance has been rapidly evolving, with positive implications for policyholders.
In fact, the market is seeing a shift in focus from personal injury and small commercial cases towards highly complex commercial cases. Even very well resourced clients are deploying litigation funding and insurance to manage their risks. The purchase of such insurance is no longer restricted to just adverse costs, or for the full potential liability. For example, some clients will insure some of their own solicitors cost risk and at the other end of the scale others will buy 70 per cent coverage for their opponents’ costs exposure and 30 per cent of risk sits within their tolerance and risk appetite.
The armoury
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 litigation risk include:
- Single and multi-claimant actions in both the English High Court and Competition AppealTribunal – 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 – mitigating the financial impact of a decision being “reversed”
- Tax uncertainty risks
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 liabilities, 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
Our dispute resolution team 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 in excess of $20m; and tax uncertainty insurance in excess of $70m.The efficient and timely deliverability of smaller cases remains key also.
Meeting client needs
Market solutions and policy wordings are evolving 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 an award is lower than expected, any 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 with bespoke policy wordings is a mitigation measure worth exploring.
*Independent ratings from third party rating companies. Correct as of August 2019.
