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.