Whilst attending a conference recently, I was surprised to hear a representative of a well-known funder state that there are significant capacity issues within the after the event (ATE) insurance market and that it was becoming increasingly difficult for claimants to obtain adverse costs insurance for higher levels of indemnity. The funder went on to share their view that a claimant’s best chance of obtaining ATE insurance is through a litigation funder given that many of the funders have binders in place with ATE insurers that conveniently circumvent the capacity issues this funder perceives a claimant might otherwise face.
Needless to say, I considered this to be an ill-informed and somewhat misleading statement and I was a little disappointed when time ran too short for me to test the speaker’s views further with a question for the panel. Whilst I think it unlikely that the audience, sophisticated as they were, would think this comment was anything short of an attempt to increase law firm reliance on litigation funders, it raises an important point worthy of clarification.
All is well with the ATE market
It is true that the ATE market faced an uncertain future following the initial implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Many thought that the ATE insurance market would shrink and perhaps even die following the removal of premium recoverability and the introduction of the qualified one-way costs shifting regime in personal injury cases, an area that provided a significant amount of business to ATE providers historically.
Several years post the Jackson reforms, however, the market has proven itself to be incredibly resilient and more than capable of reinventing itself to suit the costs challenges faced by today’s claimants (and defendants for that matter). Over the past five or so years, we have seen a complete reversal from a market reliant on high volume, low value civil litigation matters to one where most insurers set out their stalls predominantly for one-off cases in excess of £500,000 damages.
By way of an endorsement on the health of the market and in responding to the Ministry of Justice’s review of Part 2 of LASPO, one ATE insurer went so far as to say that the volume of their ATE book had increased post implementation of LASPO. They went on to say that new entrants have entered the market and ATE has never been so competitive.
TheJudge’s view
From our perspective, the market is very much alive and well. There is ample capacity to be found with reputable providers, including A-rated markets, particularly for the types of cases litigation funders would be considering. We regularly arrange policies with cover ranging from £25,000 to many millions with partially or fully deferred premiums, whether with a stand-alone insurance provider or through a co-insurance or line slip arrangement. For example, we recently closed a £10 million adverse costs insurance policy directly with an insurance provider and it didn’t occur to us that we might need a litigation funder to assist us in sourcing this arrangement.
It is possible that proponents of the view that the ATE market lacks capacity are contemplating concerns about sourcing adverse costs protection specifically for claimants pursuing follow-on damages claims pursuant to European Commission decisions on price fixing. There will always be the odd occasion when regulatory decisions leading to multi-billion pound claims in jurisdictions around the world create aggregation issues within the funding and ATE market. In those situations, a funders’ facility might be accessed by one party to the frustration of another who subsequently approaches the same insurer through a different route. However, the same could apply the other way around or, indeed, if another party seeks funding and insurance for the same claim through the same funder. Remember, of course, the party who approached the funder would have been contracting for funding as part of the bargain and, therefore, the ATE premium might be payable on an upfront basis. A party approaching the insurer through another route may be seeking to obtain the insurance for a deferred and contingent premium. Comparing the two arrangements, therefore, could be like comparing apples with pears.
Mind the gap created by LASPO
The ATE insurance market is not perfect and one size certainly does not fit all. As with law firms, and indeed funders, ATE insurers will have varying appetites for different cases based on the knowledge of their underwriters, their experience and their current book of business. With some cases you just need to know where to look. Other cases, however, simply do not have the requisite level of damages to attract an offer for ATE insurance, no matter the prospects of success.
Whilst the recent Review of Part 2 of LASPO found that the Jackson reforms met their objectives, it is clear to us that the removal of recoverability for ATE premiums has had a negative impact upon access to justice for claimants bringing modest non-injury cases. Post-LASPO, the underlying costs of litigation have not diminished to the extent that would have enabled a dramatic reduction in premiums. As a result, the availability of adverse costs cover on a deferred and contingent basis is no longer based solely on the merits of the case, but rather whether there is sufficient economic headroom to pay the premium from the damages. Unless the claimant can pay the premium on an upfront basis or has a sufficiently large claim to obtain funding for the premium, they realistically require a cost to damages ratio of approximately 1:2 in order for an insurer to be comfortable that a claimant can pay the premium from their damages whilst allowing the claimant to keep the lion’s share.
There are dangers in believing all you hear
Whilst litigation funders often have streamlined access to adverse costs insurance facilities, it is verging on the absurd to suggest that a claimant might struggle to obtain adverse costs cover without the assistance of a litigation funder in sourcing the insurance arrangement. A litigation funder may be approached to pay the premium if a deferred and contingent arrangement is not available or desired. However, the ATE market for adverse costs cover remains buoyant and insurers are very willing and certainly able to take instructions directly from the lawyer, claimant or a broker.
Moreover, we would argue that advising your client to accept an ATE insurance policy arranged by a litigation funder without due consideration for the alternative options available on the market may not be in your client’s best interests. Such advice may also fall foul of your Solicitors Regulation Authority duty to put the client in a position to make an informed decision on how to pay for their legal fees.
