After-the-event insurance is an option for City litigants

TROUBLED economic times are typically marked by a surge in litigation, even as companies’ budgets and their ability to fund litigation remain constrained. Given the imperative to continue delivering shareholder value in the face of uncertain market conditions and an increasingly litigious environment, it is hardly unexpected that litigation costs are fast rising to the forefront of management boards’ concerns. Already in late 2008, 76 per cent of FTSE350 respondents in a survey run by Ipsos Mori on behalf of Addleshaw Goddard ranked the cost of litigation as their number one concern in relation to dispute resolution. Concerns over costs inevitably hinder access to justice, as even claimants with a strong case shy away from the courts for fear of financial disaster in the event they lose, however unlikely this might seem.

Alternative funding options that reduce the financial pressures, such as insurance-backed Conditional Fee Agreements (CFA), have already proved a valuable tool in giving litigants in personal injury or clinical negligence cases better chances of access to justice but take-up by corporate UK has been, somewhat surprisingly, slower. Even with CFAs under the spotlight as the Ministry of Justice embarks on its civil litigation shake-up, the option of “after-the-event” insurance (ATE) remains open to litigants and has obvious attractions. ATE – taken out once a dispute has arisen to insure claimant expenses and opponent costs and protect litigants against financial risk if a case is lost – can, contrary to a popular misconception, be used independently of CFAs and has much to offer litigants seeking certainty in the uncertain process of litigation. What are the reasons for its comparatively slow adoption in business litigation? As the aftermath of the recession brings a renewed focus on cost-control, are we about to witness a quiet revolution in business litigation whereby ATE becomes a mainstream funding option even for complex high-stakes commercial cases?

With companies (as well as the government) keen to minimise legal budgets where possible, the time certainly seems right for it. In the past, litigators have expressed concern about finding the right sort of ATE policy to cover all eventualities of a complex case. Today’s insurance products, however, have evolved significantly and solicitors are often unaware of the true degree of certainty – an especially valuable commodity in these economic times – an ATE policy can offer.

The use of ATE has also been hindered by some surprisingly enduring myths. The first of these – that ATE is only available in personal injury cases and not for business litigation – seems to be dying out now, but others persist. One regularly voiced concern is that the financial implications of a case remain significant even with ATE in place, as premiums would be payable regardless of the outcome of a case. This is simply not true. Premiums are only payable when a case meets all the conditions of success and thus an unsuccessful case will not lead to any financial liability.

Finally, ATE is no barrier to alternative dispute resolution. Because of the common association of ATE with full-scale litigation, many assume it is only available in these circumstances and would not, for example, cover mediation fees. This is another myth. Certain legal insurers will cover mediation fees under ATE policies, meaning that a quick out-of-court resolution to a dispute is not out of the question.

Use of alternative funding methods, when parties are properly informed about the costs and benefits of each tool, would often offer the proverbial win-win solution for claimants, defendants and lawyers. It is to be hoped that the recession will prove to have a silver lining in forcing different parties to pay closer attention to different litigation funding options available, bringing greater peace of mind and better access to justice for individuals and businesses.

Peter Smith is managing director for Legal Expenses Insurance and Head of ATE at FirstAssist