Tuesday, February 18, 2014

ATE Insurance: A Guide for Litigants

Brought to you by our friends at Vannin Capital PCC Ltd

All litigation is expensive. In addition to the calculable costs of lawyers’ fees and disbursements, there is the additional cost of risk. This risk is usually in the form of losing the case. Not only are one’s own fees still payable for work undertaken, but costs might be awarded against a losing party. No wonder that litigation insurance is available. Since much litigation cannot be foreseen, it is this after-the-event insurance which is now such an important aspect of civil litigation.
Essentially ATE insurance is where an insurance company provides an indemnity for legal costs in the event that a client loses a piece of litigation. Unlike traditional or before-the event insurance ATE insurance is only available to litigants already involved in a legal claim. (It is usually claimants who make use of ATE insurance, although it might be used by defendants.) For the litigant, ATE insurance can be seen as not only a safety net against an adverse outcome, but as an essential component in funding the litigation. Few litigants would be able to afford adverse costs. Also some ATE policies will provide peace of mind in meeting one’s own legal fees and disbursements.
The ATE insurance market is a relatively new and growing phenomenon. As big commercial disputes often include claims for millions and indeed billions of pounds or dollars, it has become increasingly necessary as a way of affording litigation. The growth of ATE insurance availability is witnessed by the fact that twenty three companies offering policies are listed in Litigation Funding Magazine. Although most will offer standard ATE policies in relatively low cost claims (£100,000 - £500,000) in areas of litigation such as Road Traffic Accidents, Personal Injury and Clinical Negligence, some ATE policies will be for commercial claims. Typical commercial claims might be for patent infringements, fraud, investment disputes, international arbitration and construction claims. For such commercial, large claims, ATE insurance policies tend to be bespoke, unique policies. It is part of a solicitor’s professional duties nowadays to ensure that clients are advised of all risks associated with litigating, of all insurance options to mitigate those risks and of all options of funding the litigation. Applying for and securing insurance and funding will usually be undertaken by the solicitor.
The whole business of affording and funding litigation is an increasingly complex and expanding field. Alongside the development of ATE insurance cover there has been the growth of third party litigation funding companies. (To date twenty such companies are listed in Litigation Funding Magazine.) Essentially these litigation funding companies are prepared to invest in litigation disputes in return for a proportion of the successful claim. Such investment is risky; funders reject all but sound cases (usually those with at least a 60% chance of winning.)  If cases they have funded lose, third party funders lose their investment and might also incur heavy costs from the winning side. Thus, litigation funders have also encouraged the development of ATE insurance, as a means of insuring against their own risk. Few litigation funders would enter into a funding agreement where ATE insurance was absent. Obviously ATE insurance providers and litigation funders are assessing the strength of a case from a common perspective. Any client unable to secure ATE insurance and/or third party funding should quickly get the message that they have a very weak case, probably one not worth pursuing.
So for anyone involved in a litigation dispute the message is clear: apply for and secure ATE insurance as quickly as possible. Ensure your solicitor explores this option and that all avenues of funding the cases are investigated. Should the case fail, at least the ATE policy can help reduce the financial loss. The best ATE policies would cover adverse costs, disbursements such as court fees and expert’s fees, counsel’s and solicitor’s fees. No ATE cover? Then litigate at your peril.    
This article was written on behalf of Vannin Capital. Visit their website to learn more about business litigation. 

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