Commercial Litigation Insurance – FAQ’s

Litigation insurance, often referred to as After-The-Event or “ATE” insurance, insures your clients against the risk of having to pay the other side’s costs if your client is unsuccessful. In those circumstances, it also re-pays their own disbursements.

IPT is paid by clients based in the UK at a rate set by the UK government. IPT is also paid by clients based elsewhere in the EU and the European Economic Area (“EEA”). Different rates are set by each member state. No IPT is payable by clients based outside the EU or the EEA. When you ask us to consider insuring a case, do let us know if the client seeking insurance is based outside the UK.

If there is a counterclaim at the outset, or it arises later, you will need to tell our underwriters. We will then discuss the merits of the counterclaim with you and review the merits as part of the underwriting process. Our insurance can provide cover to include opponent’s costs arising out of the counterclaim or these costs can be excluded from cover. We would always prefer to provide cover for both the claim and any resulting counterclaim but we have to judge each case on its merits.

We recognise that even our own market-leading Litigation Insurance cover will not always be accepted as sufficient to respond to an application for security for costs. For the right case, we can provide an anti-avoidance clause that we find provides sufficient security. Because it results in an increased risk, anti-avoidance clauses can only be offered in cases that are strong and only on the basis of an increased premium. But our premiums are deferred and contingent on success – you will not have to pay anything “up-front” if we agree to include an Anti-Avoidance clause in a policy.

Litigation insurance is often misunderstood. It is used once a legal dispute arises and, in the event your client’s case loses, it provides cover to the client for both any costs payable to the opponent and any own disbursements. If the client loses their case, they do not pay the premium since it is self-insured by the policy. Temple’s litigation insurance premiums are also deferred until conclusion of the case. Therefore in the happy event that the client wins their case, only then would they have to pay the insurance premium.

Not unless one is available when you first apply for insurance. It always helps to see an opinion from counsel but it’s not essential. What we need is a case summary from you – to include the background facts of the case, your assessment of the strengths and weaknesses of the case, how any weaknesses might be overcome, and your overall view of the merits. You’ll also need to complete a Proposal Form.

Litigation insurance is a one-off insurance policy that allows a party (the claimant or the defendant) to transfer the risk of losing their dispute to the insurer rather than bear it themselves. The insurance policy will respond to the opponent’s legal bill in the event that they have been unsuccessful in their dispute and pay any of the insured’s disbursements.

Whilst the main function is to pay the other sides legal bill on behalf of the client in the event that their legal action has failed it will also cover the client’s own disbursements such as Court fees and expert fees etc. This means that more than just the risk of paying the other sides costs can be off set.

Litigation insurance can also respond prior to the conclusion of the legal action. For example, our ATE policy also covers adverse costs orders in respect of interim applications.

Whilst most of our clients have in the past have been claimants, any party to litigation can obtain Litigation insurance whether they are the claimant, defendant or a Third Party/Part 20 claimant or defendant.

Litigation insurance works for all!

Clients of limited means who could never pay any order for costs if their claim failed cannot embark on litigation without litigation insurance.

Clients of modest means and small businesses who would struggle to pay any adverse costs order need Litigation Insurance to ensure they can take on a better resourced opponent on an equal footing. How often has a client had to concede early and accept a poor offer in order to avoid the risk of paying out costs later? Litigation Insurance protects them and gives them the means to achieve a good outcome.

Well-resourced clients such as high net worth individuals and large corporates look to Litigation Insurance to hedge the risk of litigation. Why would a company have a contingent liability to pay an unknown sum in costs in their accounts when litigation insurance gives them the certainty that if they win they will pay a premium that can be agreed and fixed at the outset and if they lose no liability to pay adverse costs will arise.

We have a range of premiums to suit every case. Factors governing the cost of litigation insurance include: –

• the value of the claim;
• the amount of the insured’s own costs;
• the merits of the claim;
• the nature of the litigation, and;
• how much cover is sought.

Generally speaking, the more insurance required the more expensive the premium will be. However, we typically offer staged premiums, meaning that the cost of the premium is linked to the stage of proceedings where the matter settles. If a matter settles at trial, it will be more expensive than if it had settled once a defence had been filed.

Our litigation insurance premium will always be capped to a maximum amount. Therefore, clients will only ever pay a proportionate amount for their litigation insurance policy with us.

Save for some media cases, the client has to pay their litigation insurance premium. This is usually deducted from the damages recovered. However, our insurance premiums are always fully deferred until successful conclusion of the matter. If the matter is unsuccessful then the premium will not be payable, but the policy will still respond to the claim for the insured amounts.

ATE provides numerous benefits to clients wishing to pursue a legal action.

• Claims can be pursued to their fullest extent
• Litigation Insurance removes the risk of having to pay the opponents legal costs if the dispute is pursued unsuccessfully
• It mitigates the clients own expenditure on disbursements etc
• It provides protection from interim costs orders

Because there is a 40% chance that your client could lose the case and have to pay the other side’s costs and their own disbursements. For example if the other side’s costs for defending the claim come to £100,000, your client will have to pay those costs. With litigation insurance cover in place, the insurer will pay those costs and any own disbursements and only in the event the action does settle in the client’s favour, will the premium become payable. The premium will always be cheaper than the adverse costs an un-insured claimant would have had to pay.

If the client company or the business owner prepared to write-off the difference between the insurance premium it will have to pay if, but only if, the claim succeeds and the full amount of the other side’s costs, which their business will have to pay if the claim fails?

No. Our products and services are available regardless of the type of retainer you have with your client.

As a case progresses, providers of litigation insurance such as Temple Legal Protection become less willing to insure cases because the risks involved become greater and cases are much less likely to settle as they approach trial. The best time to propose a case to us is at the stage when the merits of the case can reasonably be assessed. Typically clients ask us to look at cases after the prospective defendant has provided a substantial response to a letter of claim and we find that we are then in a position to decide if we can offer to insure the case.

We can provide a policy to your client on behalf of the insurer before the claim itself is issued and, by choosing if your client choses a staged premium and insured pre-issue, they will inevitably benefit from a lower premium if their claim settles at that stage. This also gives the client the certainty of having a policy in place since, if they delay, they may not find a provider willing to take on their case at all.

Is your client really prepared to put their business at risk based on the outcome of their claim?

In addition, the business may be required to show the potential amount of their opponent’s costs they might have to pay in their accounts as a contingent liability. If they have litigation insurance cover in place, this contingent liability disappears. All they need to account for is the premium, which is agreed at the outset, and is only payable if the case is successful.