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Changes in Litigation Funding – ATE Insurance Premiums no longer recoverable after 1 April 2013 – the time to act is now

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Current rules

Special insurance policies exist to cover an adverse legal costs award, which may be available even if the dispute has already arisen. This is known as “after the event” insurance and it is intended to provide cover in the event that an order is made that a party pay the other party’s costs because the claim or an interim application made during the claim is unsuccessful. ATE insurance is usually only available to Claimants and therefore we refer to the party with or seeking ATE as the Claimant throughout the rest of this blog for the sake of simplicity.

Policies of this type generally cover the risk of having to pay the Defendant’s costs and also cover the Claimant’s own disbursements if the claim is unsuccessful. Insurance of this nature involves satisfying an underwriter that the Claimant has sufficient prospects of success (usually at least 60%) and that the Defendant has the financial means to pay. The premium is normally calculated on the basis of the total estimate of costs insured considered against the percentage chances of losing the case. The premium can be deferred and self-insured meaning that under the current rules the Claimant does not actually have to pay the premium (unless it agrees to do so as part of a settlement package) and, in the event the case is won, the insurers recover the premium from the other party, or if the case is lost, the premium is self insured so not payable.

New rules

As of 1 April 2013 insurance incepted after the new rules come into force will cease to be recoverable from the opponent and premiums will be payable by the Claimant. This lack of recoverability makes ATE insurance less attractive after April 2013 and therefore any application for ATE should be made immediately in appropriate cases.

Future litigation funding

As we approach the planned date of implementation, the Ministry of Justice is starting to release information that will shape the future of litigation. The major changes include the introduction of Damage Based Agreements and changes to the success fees payable under Conditional Fee Agreements (popularly known as “no win, no fee” agreements), the details of which are still being hammered out. These fee arrangements can be structured in part around solicitors’ fees being paid by taking an agreed percentage of the damages. The MOJ has announced that commercial cases will be subject to a cap of 50% of damages.

Clarion has a dedicated costs team that remains on top of all legal developments in relation to funding and recoverability of costs. We have relationships with leading litigation funders and insurers. We are flexible in terms of the way we are instructed and are happy to have a discussion about this from the outset. If you would like any further information about costs issues or litigation funding please contact our Manager of Costs and Litigation Funding, Andrew McAulay at andrew.mcaulay@clarionsolicitors.com, or on 0113 336 3334 or John Mackle, a senior associate in our litigation team at john.mackle@clarionsolicitors.com or on 0113 336 3336.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.