Is Insurance An Essential Funding Ingredient?
Litigation funding has changed in numerous ways since the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) came into force in April 2013.
LASPO changed the playing field for litigation funding, in particular from a litigation perspective in respect of Conditional Fee Agreements (“CFAs”), also known as “No Win, No Fee” arrangements, and the recovery of success fees and insurance premiums.
In the context of a CFA, the solicitor (and often Counsel) agree to act on a funded basis whereby the claimant pays no fees until the claim is concluded, whether that be through settlement or as a result of a judgment being handed down, at which point the advisor is able to recover their fees, as well as an additional percentage of them, which is called a “Success Fee”.
Claimants are able to take out After The Event (“ATE”) Insurance which would, depending on the policy, cover them in the event that their claim was unsuccessful and they had adverse costs awarded against them. A successful claimant with ATE insurance is normally required to pay the insurer the policy premium once the claim is concluded and this is generally a staged premium which increases the closer to proximity to any trial.
Prior to LASPO, successful claimants who instructed their solicitors on CFA basis were entitled to claim back from their unsuccessful opponents the success fee payable to their solicitors and, if applicable, the insurance premium, plus insurance premium tax, to their insurers.
Post-LASPO, successful claimants were no longer able to claim these payments back, and the success fee and any insurance premium would be payable by them; this effectively reduced the damages they were awarded as an element was payable by the claimant in respect of the costs of the litigation.
LASPO has brought around a shift in how litigation is funded, and the type of insurance litigants could seek to rely upon, but insurance retains a crucial role in litigation funding in England and Wales for several reasons and is an additional tool in the litigation funding armoury than must be considered at every stage of the litigation journey.
Litigation Insurance provides the following benefits to litigants:
Access to Justice: Legal expenses insurance, particularly Before The Event (“BTE”) insurance, allows individuals and businesses to pursue legal action without the fear of prohibitive costs. BTE insurance is a type of insurance which is already in place before a claim is contemplated; the premium is paid when the insurance is incepted and enables potential litigants to be in a financial position to have the initial requisite actions in a dispute covered by insurance to permit access to justice to commence.
Risk Management: It is no secret that litigation can be unpredictable and costly. Insurance helps manage these risks by covering legal expenses, which can be substantial. Such insurance can assist with the management of financial risks by virtue of making it more feasible for claimants to proceed with their cases where they otherwise may be financially prohibited from funding additional costs outside professionals’ fees such as experts’ reports, court fees and other expenses known as disbursements.
Encouraging Meritorious Claims: When looking at ATE insurance, it is common for insurers to assess the merits of a case before agreeing to cover it. Such assessment gives potential litigants an in depth understanding of their claim, including setting out potential risks and hurdles for them to overcome which allows for better decision making at an early stage around the progression of the litigation. Such early assessment also helps ensure that only cases with a reasonable chance of success are funded, reducing frivolous or unsubstantiated claims and equally freeing up court resources as an aside.
Financial Security for Funders: In addition to providing financial security for claimants, for third-party litigation funders, insurance provides a safety net in the same way in that it is there to cover adverse costs if the case is lost. This financial security encourages funders to invest in more cases, which enables a wider pool of disputes to proceed to litigation where the funding is there to drive this access to justice which might otherwise not be open and available.
Comment
Steve Beahan, Partner and Head of the Commercial and Property Litigation team and Irwin Mitchell comments:
“Insurance is an essential ingredient in providing access to justice and litigation funding for numerous types of claims and disputes.
“BTE insurance opens the door to many claimants (both individuals and corporates) who lack the financial security or wish to deploy funds elsewhere, to pursue their claim through the correct legal process.
“It is important to remember there are a multitude of different insurance products available for different types of litigation claims and it is important to discuss what might be the most appropriate insurance product with your broker and the most appropriate type of funding with your solicitor to provide adequate security and mitigate your financial risks dependent on what your needs are.”
Katie Armstrong, Client Development Director at Howden, comments:
““Litigation insurance provides an important element of certainty for litigants, but it is essential for them to secure the right product tailored to their specific needs.
“The market has undergone remarkable evolution, offering sophisticated solutions for claimants, defendants, law firms and funders, who are invested in litigation.
“As insurers become more flexible in their underwriting approach, the pool of claims eligible for cover continues to grow.
“Understanding the available solutions and having the right access points into the market is key in securing a bespoke solution. This highlights the value in working with experienced law firms and brokers who understand the market and how to present a risk- whether for a one-off claim or portfolio.
“Watch this space as litigation insurance continues to evolve working hand in hand with litigation funding to unlock meritorious claims.”
On Thursday 5 June (4.00pm - 5.30pm) Irwin Mitchell LLP be hosting an insightful panel discussion around AI-assisted technology and alternative funding for litigation and dispute resolution as part of London International Dispute Week.
Head of Commercial Dispute Resolution, Katie Byrne, will be joined alongside Steve Beahan, Head of Commercial LEI; Dominic Tucker, Associate Director at iDiscovery Solutions; Katie Armstrong, Client Development Director at Howden; and Iain McKenny, Founding Partner at Profile Investment.
Please register here if you would like to attend.
