After the event insurance works differently from traditional insurance. Premiums are based on the likelihood of the success of the claimants case, which only a lawyer or barrister can advise on. Read more here...
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How does after the event insurance work?
After the event insurance works differently from other types of insurance. Typically, most insurance is purchased on the basis that at some time in the future, an unexpected event may happen. When it does, it will cause the person or company that takes out the insurance policy to suffer a financial loss. For example, a motor insurance policy will kick in if there is an accident. A home or business insurance policy is purchased in case the building or its contents are damaged due to a range of incidents such as a fire, storm, theft, etc.
Most insurance is obtained by providing details of the item or event that insurance protection is required for, to an insurer. The insurer then calculates the risk of an event occurring based on their experience and statistics and quotes a premium. If that premium is acceptable, it is paid, and the policy is issued, and everybody hopes that nothing happens. Typically, 12 months later the insurance needs to be renewed and the process above is repeated.
How is after the event insurance different from normal insurance?
After the event (ATE) insurance is different. It is almost exclusively used in legal disputes. Unlike with traditional insurance, after the event insurance is issued after the actual event has already happened. For example, two parties may enter a contract where one of the parties supplies goods or possibly services to the other. Then one of the parties breaches the contract (e.g., supplies goods or services that are allegedly not fit for purpose as agreed in the contract or simply fails to deliver at all or withholds payment). So, unlike traditional insurance, the loss has already occurred. The challenge then is how the innocent party decides to proceed. If for whatever reason, the dispute cannot be settled, the wronged party may decide to take legal action to obtain compensation.
This is when ATE insurance becomes necessary. Pursuing litigation carries the risk that if the case is unsuccessful, the losing party will not only have to pay their own legal costs and disbursements fees. However, they will also have to pay the legal costs and disbursements for the other side. If the case is won, then the other side pays the winner’s costs (in a way it is really is a case of the “winner takes all”).
How are after the event insurance premiums assessed?
Unlike general insurers that have access to a wealth of statistics from their own records and from industry data, legal cases that are eligible for after the event insurance very much rely upon the specific issues of the individual case. For an after the event insurer to offer cover, they need a detailed explanation and understanding of the dispute. This process starts when the lawyer that has been instructed by the innocent party, completes a proposal form. In this proposal, the lawyer is asked to give an opinion on the chances of the case’s success. In many cases, the lawyer may seek advice, or the insurer may request, an opinion from a barrister who is an expert in the area of law that applies to the actual dispute.
The next step is to work out what limit of indemnity (cover) is needed. This is made up of two elements. The first is what the other side’s costs will likely be if the case is lost. The second is the likely level of disbursements the party pursuing the case will likely incur. These may be things like expert reports, issue fees, etc. ATE does not cover the claimants’ own legal costs that the lawyer will charge them to act on their behalf.
The chances of winning and the cover needed are then combined to calculate a premium. Typically, the premium is staged so that the earlier the case is settled the lower the premium will be. These points are usually triggered before proceedings are issued, after proceedings are issued, after full discovery and exchange, and then finally, and most expensive, less than 60 days before the trial.
When is after the event insurance paid out?
Once the policy is in force, the lawyers pursue the case and keep the insurers advised of any major events or changes. If the case succeeds, the ATE premium is paid at the end, normally from the damages awarded. If the case is lost, then the insurer pays the claimant’s disbursements and the other legal costs incurred by the other side. The premium is included as part of the claim which means that the loser does not have to pay anything, other than their own lawyers’ costs. Most ATE insurers insist that any lawyer acting for the claimant, do so on a “no win, no fee” basis.
However, one important factor should be noted. ATE insurance will only cover cases where a lawyer or barrister considers the case is more likely to win than to lose. Therefore, the assessment of the case by a lawyer and/or a barrister is vital to decide if the cover will be offered. This assessment is referred to as the prospects of success and insurers require this figure to be at least 51% and prefer to see prospects of success place at 60% or better if they are to offer a policy.
In summary, ATE insurance combined with a lawyer acting on a “no win, no fee” can give security that will give claimants access to justice, without the fear of facing a huge legal bill at the end of the case.
Contact us
If you are pursuing a litigation case for a claimant and would like to find out how ATE insurance works, or if you need help completing a proposal form for ATE insurance, then please contact us on 0800 524 4235 or email info@prosperityinsurance.co.uk
This is not legal advice; it is intended to provide information of general interest about current legal and ATE insurance issues.
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As an IP, speak to a lawyer or insurance broker to do a policy review to determine the potential success of a business interruption insurance claim, for risk-free litigation with nothing to lose but with something to gain.
The post What do insolvencies, business interruption claims, and after the event insurance have in common? appeared first on Prosperity Insurance.
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What do insolvencies, business interruption claims, and after the event insurance have in common?
Insolvencies, business interruption insurance claims, and after the event insurance are three topics that, at first sight, may seem like strange bedfellows. But are they?
A recent article by David Steinberg and Yasmin Curry of Stevens & Bolton LLP looks at the number of insolvencies in the last quarter of 2020 which were the lowest since 1989. Given the Covid-19 Pandemic and the effect it has had on the economy, and particularly on the SME sector, it is indeed very surprising. Quite rightly, as the article points out, this may be the “calm before the storm” as the various Government support schemes are withdrawn, and the “new normal” world emerges from lockdown.
In addition to the Covid-19 business support schemes the Government has introduced, the Financial Conduct Authority (FCA) also started a High Court action in the last quarter of 2020 involving several insurers who were arguing that their commercial policies did not cover the financial losses arising from business interruption because of the pandemic. This case was treated with such urgency that the appeal process was leapfrogged straight to the Supreme Court who handed down their judgement on the 15th of January 2021, which largely favoured the policyholders.
In a laudable effort to help businesses, the FCA has set up an online resource to assist claimants to see if their policy will cover them. It is worth having a look at the process and forming a view as to how helpful it is to the layperson. I suspect that for many businesses they will need help just to identify who they are or were insured with.
In my opinion, the media reporting of the FCA business interruption judgement was over-optimistic. There were big headlines across the media about how more than 370,000 business would be affected.
“Unfortunately, a few minutes on national TV and radio news could not possibly give the full story of the 112-page judgement that their Lordships handed down. What the reporting did not deal with, was the process of actually making a claim.”
As with any claim under any insurance policy, evidence of loss needs to be proved and quantified, and for business interruption claims, this means not just what turnover has been lost. As most businesses know, turnover is not the same as profit. So, whilst turnover is lost, so are some aspects of costs. Most claimants will need some form of assistance from their accountants to formulate and put together their claim.
Regrettably, despite the Government’s support and the FCA’s action, it will be too late for many businesses who will not come back.
So where does after the event insurance (ATE) enter the equation? Very simply, ATE provides a policy for a claimant to insure against having to pay the other sides legal costs if they lose a claim. Unlike most insurance however, the premium is deferred and contingent upon the outcome of the litigation. Again, in simple terms, no premium is payable unless the case is successful. If the case is lost, then the policy pays the other sides costs, and the premium is waived.
So how does this help in insolvency matters?
The role of the insolvency practitioner (IP) is basically to protect the creditors of the failed business and maximise recoveries. This may involve litigation.
As the trustee, the IP acquires various powers, including the ability to undertake litigation against debtors (and potential debtors). Whilst many bankruptcies are genuine cases, there are always those that are less transparent. The most common events appear to be transactions at an undervalue (section 339 and 341, Insolvency Act 1986) and transfer of property (section 423).
In the discharge of their duties, IPs must be mindful of the cost to the estate and may engage a solicitor on a Conditional Fee Agreement (CFA). With ATE, the protection can be extended to effectively create risk-free litigation.
The much more regular use of ATE is likely to be in situations where there was (or is) a commercial combined policy in force at the time of the insolvency, where a claim for recompense under the business interruption section has been declined or disputed in terms of either cover or quantum.
So how can after the event insurance help with insolvency and business interruption claims?
There is no reason to stop an IP from asking a lawyer or insurance specialist, such as Prosperity Insurance, to undertake a review of the insurance documents to ascertain if there is a potential to lodge a claim under the policy, and if there is then the combination of a lawyer on a CFA, combined with ATE cover, to create risk-free litigation with nothing to lose but with something to gain.
So perhaps insolvency, business interruption claims and after the event insurance are rather a nice, cosy fit rather than strange bedfellows.
Contact us
If you are an insolvency practitioner or a lawyer, and you would like more information relating to ATE insurance or to discuss this article further, then please feel free to contact me, Chris Kelly, on telephone: 0800 524 4235, email info@prosperityinsurance.co.uk.
This is not legal advice; it is intended to provide information of general interest about current legal and ATE insurance issues.
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After the event ATE insurance is purchased after a specific type of event has already happened, and usually when a legal dispute arises. If you are a lawyer wanting to know how ATE insurance can help your clients, read on.
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What is after the event (ATE) insurance?
Are you a lawyer asking what after the event insurance is and how and when is it used, then read on?
After the event (ATE) insurance is cover purchased after a specific type of event and usually when a legal dispute arises.
At the outset of the claim, it is the solicitor who will purchase an after the event ATE insurance policy on behalf of their claimant if the claimant does not already have a suitable or alternative before the event (BTE) or legal expenses insurance (LEI) cover in place.
Unlike traditional insurance policies, which many people have experience of buying for themselves, such as car or travel insurance directly with either an annual or monthly payment plan, an after the event ATE insurance policy premium is only paid if, and when your claim is successful, and you have received your compensation payment.
There is no legal requirement to have a legal expense or an ATE insurance policy in place to pursue a claim for compensation. However, it is advisable to have one, as without it, a claimant may potentially be exposed to unnecessary financial risk if the claim being pursued is ultimately unsuccessful.
ATE insurance is an arrangement between the claimant who is bringing the claim, and the ATE insurance company which has been arranged by their handling solicitor. The claimants’ solicitor will usually be working on what it is called a conditional fee agreement (CFA) which is more commonly known as a ‘no win no fee’ arrangement. It is the solicitors’ responsibility to make sure that their claimant is fully aware of the terms of their CFA arrangement and what it covers, together with the after the event ATE insurance to limit their potential financial exposure going forward regarding their claim.
After the event ATE insurance is traditionally associated with personal injury claims associated with incidents such as a road traffic accident (RTAs) or accidents involving slips, trips or falls (EL PL). However, over the many years, the after the event ATE insurance market has developed and branched out into other areas such as medical negligence, industrial disease, housing disrepair (HDR) and data breach (privacy) claims to name but a few. ATE insurance can also offer cover for businesses or individuals involved in disputes of a more commercial nature such as professional negligence, insolvency and bankruptcy, breach of contract, defamation, etc.
A typical ATE insurance policy will usually include and cover the following aspects – the claimants own disbursements incurred, such as medical reports or court fees, and their opponents’ costs and disbursements (otherwise known as adverse costs). The ATE insurance policy premium is also usually fully deferred until the case concludes, meaning nothing is usually paid up-front and the premium is only payable if the claim is successful. If the claim is unsuccessful, then the claimant does not have to pay the ATE policy premium, as it is fully self-insured. Each ATE insurance policy will also carry its own limit of indemnity (LOI) which is the amount that the claimant is usually insured up to for their claim.
It is recommended that an ATE insurance policy be acquired at an early stage of the claims proceedings where the associated risk with the case is deemed as being relatively low. In some circumstance, this may not always be appropriate and sometimes may be more prudent to ATE insurance further down the line once the claims journey or process has already started. Premiums in this regard will traditionally differ, as if insured earlier, will tend to be lower than those offered once a case has been progressed or proceedings have already been issued on.
After the event insurers are guided by the solicitors’ views on the claim’s prospects of success which the market average benchmark is 51%+ and is typically for a claim to be progressed and handled by a solicitor under a CFA.
The actual payment of the after the event insurance policy premium was changed following the introduction of the LASPO or Jackson reforms back in 2013. Pre 2013, the ATE policy premium was able to be recovered from the defendant in full. However, post these reforms and to date, the ATE policy premium is now payable out of the claimants recovered damages which the solicitor will arrange. There are, however, certain circumstances/claim types though, where the ATE policy premium or at least part of it, can still be recovered from the defendant, such as in medical negligence or in privacy cases.
ATE insurance is usually also limited only to the courts and laws of England and Wales. It cannot cover matters in other jurisdictions because of recoverability, regulatory, or licence requirements.
Regardless of the type of legal dispute, there is no doubt that people and businesses have become more aware of their own legal rights and the society in which we live has become a lot more litigious, which will mean that the ATE insurance sector will continue to develop and evolve.
Contact us
If you are a solicitor or law firm and would like to find out further information or to arrange a face-to-face meeting or a video or telephone call to discuss your firms ATE insurance requirements, then please contact our Business Development team via any of the following channels; 0800 524 4235, email info@prosperityinsurance.co.uk or complete the enquiry form on our contact page.
This is not legal advice; it is intended to provide information of general interest about current legal and ATE insurance issues.
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After the Jackson reforms, people questioned whether there was still a need or indeed a market for after the event insurance if the risk of paying the defendant’s costs had disappeared. The answer is yes! Find out why.
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The History of After the Event (ATE) Insurance
The beginning
Way back in 1999, when the world was a different place to that which we now know, the ‘Access to Justice Act’ was brought into force. It brought about huge changes in the legal profession and was intended to offer an alternative to the traditional ways of people funding litigation, which up to that point had mainly been Legal Aid.
The Access to Justice Act did 3 things:
- Created a limit on the amount spent on Legal Aid
- Introduced the use of ‘Conditional Fee Agreements’ (CFA’s), or ‘No win No fee’ agreements in most civil court cases
- It replaced the Legal Aid Board with 2 new schemes, namely The Criminal Defence Service for criminal cases, and the Community Legal Service to fund civil and family cases.
The Act also introduced ‘After the Event Insurance’ or ‘ATE Insurance’. Many claimants often mistakenly think that a ‘No Win, No Fee’ agreement means that they do not have to pay any legal fees, regardless of the outcome of their case. This is incorrect. The ‘No Win, No Fee’ agreement itself is simply an agreement between the claimant and their solicitor, which states that if they lose their case, they will not have to pay their solicitor’s legal fees.
However, at that time, it was likely that if you lost your case, you would be responsible for the legal costs of the defendant, which could run into many thousands of pounds. The Access to Justice Act allowed claimants to insure against the risk of having to pay the defendant’s costs, should their case be unsuccessful by having an ATE insurance policy. At that time, the cost of the ATE insurance premium was fully recoverable from the defendant, as part of the client’s legal costs.
Hence, the After the Event Insurance market was born……
Ongoing challenges that faced the After the Event Insurance market
Over the years that followed the Access to Justice Act, many challenges faced the After the Event Insurance market and the recoverability of claimant’s premiums.
A great deal of satellite litigation then ensued regarding ATE insurance, whilst solicitors tried to understand what was required from them to be compliant and to ensure that the ATE Insurance premium was still recoverable from the defendant.
Some milestone cases then followed:
- Sarwar v Alam (2001) – In this case, it was held that the duty of a passenger in a vehicle to use the driver’s BTE policy was limited and not absolute.
- Callery v Gray (2002) – In this case, it was held that the purchase of the insurance at the commencement of the claim was acceptable. It also allowed a passenger to recover an ATE insurance premium, and a premium of £367.50 for a road traffic accident case was approved.
- Sharratt v London Central Bus Company (The Accident Group Test Cases) (2003) – The judge, in this case, held that the defendant was not entitled to a breakdown of the calculation of the ATE Insurance premium, except in exceptional circumstances.
- Avril v Boultby (2008) – This case held that the cost of an ATE Insurance policy taken out following an admission of liability was recoverable.
However, just when it seemed as though everything was settling down and there was a degree of certainty in the After the Event Insurance market regarding the recoverability of ATE premiums, the proposed reforms suggested by Lord Justice Jackson was to have a significant impact!
The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO or aka ‘The Jackson Reforms’) and ATE Insurance
In April 2013, the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 was introduced, which implemented the reforms of Lord Justice Jackson. LASPO introduced many changes in relation to the funding of civil litigation.
The biggest changes were as follows:
- Qualified One-way Costs Shifting (“QOCS”):
This applies to all CFAs signed after the 31st March 2013 where unsuccessful claimants are not obliged to pay the defendant costs unless they fall under one of the exceptions to the rule such as where fraud or dishonesty is involved.
- Success Fee:
For CFA’s signed after 1st April 2013, the claimant cannot recover any success fee which they have agreed to pay their Solicitor.
- ATE Insurance:
Any After the Event Insurance policy purchased after 1st April 2013 will not be recoverable by the claimant from the defendant.
Following the introduction of LASPO back in 2013, many people felt it signalled the end of the ATE market. After all, why would anyone need an insurance policy when there was no longer any risk that the claimant would end up paying the defendant’s costs due to QOCS?
The answer lies in the innate and often peculiar nature of litigation. The risk of a claimant needing to pay the defendant’s costs if they lose the case is not the only risk. Part 36 Offers and the very changeable nature of litigation are just a few reasons why an After the Event Insurance policy is still one of the most important purchases, as a claimant embarks on their litigation journey.
For the solicitor acting on the claimants’ behalf, the funding for their client’s own disbursements should their case fail, must be the most sensible reason for them to advise their client to take out an After the Event Insurance policy, in addition to covering the defendants’ costs as well.
There are, however, exceptions to the above, regarding where the After the Event insurance policy will pay-out, such as if fraud or dishonesty is involved in the claimant’s case.
Is there still a need for After the Event Insurance in 2021?
Following the LASPO/Jackson reforms, many people questioned whether there was still a need or indeed a market for After the Event Insurance if the risk of paying the defendant’s costs had disappeared.
The answer to that question in its simplest terms is YES!
Under the Solicitors Regulation Authority’s (SRA’s) Code of Conduct, solicitors still must advise their clients on the availability of ATE Insurance and Funding products that are potentially available, and whether a policy should then be obtained.
Failure to adhere to this SRA code of conduct could then potentially result in a professional negligence claim being pursued against that solicitor themselves, which is a position that no solicitor wants to find themselves in I am sure!
A recent milestone case in the Court of Appeal regarding ATE premiums being challenged regarding partial recoverability on Clinical Negligence cases was that of:
- West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust 2019 – In this case, the Court of Appeal addressed the issues of reasonableness and proportionality and the ‘proper’ approach to the assessment of costs, including ATE premiums. The Court of Appeal found that any consideration of reasonableness must relate to the wider insurance market and should include general market factors, as the policies are block-rated, and Costs Judges do not have the expertise to judge reasonableness of such policies without expert evidence. A challenge must be genuine. A comparison between the premium and the value of the claim is not a reliable measure of block-rated premiums in the ATE insurance market. Another issue that the Court of Appeal also had to consider here was the issue of proportionality where the costs exceeded the value of the claims, partly due to the size of the ATE premiums. The Court of Appeal found that once it is found to be reasonable, a block rated ATE premium cannot then be disproportionate.
Contact us
If you would like further information or to arrange a face-to-face meeting or a video or telephone call to discuss your firm’s ATE insurance requirements, then please contact our Business Development team by telephone on 0800 524 4235, email info@prosperityinsurance.co.uk or complete the enquiry form on our contact page.
This is not legal advice; it is intended to provide information of general interest about current legal and ATE insurance issues.
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