In these tough economic conditions, many people are in financial difficulty to such an extent that might deter them from either initiating or defending litigation, even though they feel that their case is strong. In any litigation, there is always the risk of losing and therefore having to pay your opponent’s costs as well as your own lawyer’s fees. This risk also arises where a case settles or is abandoned.
It is therefore becoming more common for people to look for creative financial solutions to get over this hurdle and “After the Event Insurance” or “ATE insurance” is one such solution, often used in conjunction with litigation funding.
ATE insurance is an insurance policy that can be taken out after a dispute has arisen to protect against the risk of having to pay the opponent’s legal costs if you lose.
It tends to be available for most types of cases with the exception of family and criminal cases and employment tribunal claims and it can be taken out at any stage of the proceedings, so first instance or appeal. It is better to seek insurance early on in the proceedings rather than late, because the later you leave it, the more costs will have been incurred.
As you would expect, it is only available for those cases where the insurer considers that the prospects of success are good, some suggest 60% or more and therefore your application will involve a detailed assessment of those prospects.
The main advantage of the insurance policy is that it will cover your Opponent’s legal costs. Depending on the policy, it can also cover the Insured’s Disbursements such as the premium of the policy itself. It can, although this is less common, and would have to be for the right risk, extend to cover the Insured’s own legal costs. Although this is a possibility, in fact, the Insured’s own legal costs are more usually covered by litigation funding. The standard cover with ATE insurance is for costs incurred after the commencement date of the policy up to the conclusion of the legal action, however, it can also cover those costs already incurred prior to the policy being taken out.
The premium for ATE insurance is costly in itself and although the amount of it will very much depend on the value of the claim and the risk involved, you can expect it to be between 25% and 60% of the amount of cover being sought.
It is important to give consideration to whether the cost of the premium will be recoverable from your Opponent if you should win your case.
In Jersey, it is not recoverable for the moment. In Jersey, if you win your case, the extent to which the costs of the proceedings and the costs that are incidental to the proceedings are recoverable is a matter for the discretion of the Royal Court. Thus far, the law has been interpreted to suggest that the ATE insurance premium is not a recoverable cost on the basis that taking out this insurance is an expense arising from a commercial decision rather than stemming from the conduct of the action itself.
If you are considering exploring the possibility of using ATE insurance, it is important that you know the jurisdiction in which you are litigating, or at least that you seek legal advice about it. Much of the literature about the subject of ATE insurance online is based on UK Law and certainly does not consider the position in Jersey. You might see mention of the possibility of the premium being recoverable before 1 April 2013, but this does not apply in Jersey.
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The information and opinion expressed in this briefing does not purport to be definitive or comprehensive and are not intended to provide professional advice. For specific advice, please contact Parslows, We are not responsible for, and do not accept any responsibility or liability in connection with, the content of this document or any reliance upon it.