What is after-the-event (ATE) legal expenses insurance?

Litigation is inherently risky. If a claim is unsuccessful the Claimant may have to pay the Defendant’s legal costs. ATE insurance is used to protect the Claimant from this risk: If the claimant loses, the ATE insurance will pay the Defendant’s legal costs.

ATE can also be used to insure own disbursements and even own legal costs, if required. This can be a cost-effective way to de-risk litigation. 

What is third party funding (TPF)?

Third party litigation funding is when a party unconnected to the litigation funds the legal (and sometimes other) costs of the claimant. Funding is used when a Claimant lacks the funds to pursue a claim, doesn’t want the costs on their balance sheet, or doesn’t want to take the risk of funding litigation themselves.

There are two main forms of TPF for insolvency disputes:

• The Assignment model, where the funder takes full control of the litigation. Typically the funder pays a relatively modest upfront amount to the IP, and agrees how any settlement will be shared between the funder and the Estate.
• The more traditional form of funding allows the IP to retain control, with the funder simply cash-flowing the legal costs as the case progresses. In this scenario the funder will usually agree a success fee to be paid from any settlement, often based upon the amount the funder has invested in the legal fees. 

Can I get funding at an early stage?

Early-stage funding used to be very rare, and we’d often hear of cases that were trapped in a vicious circle: “We need litigation funding but the funder says we need [Counsel opinion / asset reports / forensic accounting reports] before they will release funds. But we can’t get those reports without funding!”.

Early stage funding is now much more common, and can range from £5,000 on smaller claims to much larger figures on large and complicated disputes.

In order to access funding early in a claim, it’s important to present the reasons why you feel a claim could be successful, and of course to know who the right funders are that would consider such a request favourably.

Is third party litigation funding expensive?

Litigation funding is not a loan. It is non-recourse. This means that the funder will lose all of their investment if the claim fails. For this reason the cost of funding is higher than with secured lending, or even other ‘risky’ investments (most risky investments are unlikely to be completely wiped out!). TPF is perhaps better thought of as a joint-venture, whereby the funder takes on the costs and risks of the project in exchange for a share of the ‘profits’ upon conclusion.

Litigation funding is typically more expensive the longer a case runs for, and most expensive if a case goes to trial (because the risks of losing increase dramatically at trial).

We see a wide range of pricing from different funders (well over 25 operate in the UK at this time), but a good guide is as follows: Funder seeks returns of three or four times their investment if the case runs all the way to trial. If the case settles pre-trial the funder will seek between a 20% and 150% return on their funds, depending on how quickly the case settles.

Is getting litigation funding complicated and time-consuming?

Third party funding has a reputation for being difficult and time-consuming, and that is certainly true of some funders. However, with so much competition in the market now, the process is generally much quicker and simpler. We’ve arranged funding in just a couple of weeks, but most deals take a little longer (although this is often as much to do with the client’s own legal team being slow, rather than delays on the Funder’s side!).

The process is much quicker if the case is presented well from the outset, with all relevant documents. We work closely with clients to smooth this process.

Is it hard to get insolvency litigation funded by a third party?

The insolvency market is a preferred one for funders as the clients are sophisticated (an Administrator/Liquidator rather than a business owner) and much more commercially aware – as well as less emotionally involved in any dispute.

Often, significant work has already been done by both the IP and the lawyers before any litigation is considered, which is again helpful.

Do I have to pay upfront for ATE insurance?

ATE insurance does not typically have any upfront fee. Much like third party funding, any fees are paid upon successful settlement of the claim. This is known as deferred and contingent premiums.

If the case loses, there is nothing to pay. If there is a successful recovery then the cost of the insurance premium is paid from the recovered funds.

How much does ATE insurance cost?

ATE insurance does not typically have any upfront fee. Much like third party funding, any fees are paid upon successful settlement of the claim. This is known as deferred and contingent premiums.

If the case loses, there is nothing to pay for the ATE. If there is a successful recovery then the cost of the insurance premium is paid from the recovered funds.

Again, much like third party funding, the cost of ATE tends to rise over the lifetime of a case, with the most expensive premiums reserved for those cases that run all the way to full trial.

Premiums are generally calculated as a percentage of the costs being insured, and start at around 10%, rising in stages to between 30% and 50% at trial (sometimes more).

So, if you are insuring adverse costs of £100,000 the premium to pay upon an early settlement might be £10,000. If the case runs to disclosure then premium upon success might be £20,000 and this might keep rising to perhaps £50,000 or more at trial.

If the case loses or there’s no recovery, you pay nothing.

How many litigation funders are there?

There are at least 25 active funders in the UK market at this time, and that number appears to be steadily growing. Some funders specialise in particular jurisdictions, type of claim, or size of case.

There are several funders focusing purely on the insolvency market, and they both fund claims and sometimes also take assignment (where preferable for all parties).

Of the 25 funders, around 18 are very interested in funding insolvency litigation and so pricing is very competitive.

What’s the difference between ATE and third party litigation funding?

ATE insurance protects claimants from the risk of losing and having to pay an opponent’s legal costs. Third party litigation funding is used to fund the ongoing costs of litigation.

Typically, funding and ATE are used in conjunction to effectively de-risk the litigation from a claimant’s perspective.

Can I use ATE insurance as Security for Costs?

There are several precedents for the use of ATE insurance as Security for Costs, including the decision in Saxton Woods Investments Limited v Francesco Costa and Ors [2023} EWHC 850(Ch). The High Court concluded that the ATE and anti-avoidance endorsement provided sufficient protection and modified the security for costs order accordingly.

It is generally preferable to have ATE in place prior to any application for Security for Costs being made. The courts seem more likely to allow ATE as security in these circumstances.

Can I get an idea of price without going out to the market?

Yes, Annecto Legal can give you guidance on price for any claim if you wish to discuss funding options with creditors before ‘going to market’.

How do I apply for ATE insurance or litigation funding?

If you wish to search the full market for the best deal then we would of course recommend using an FCA-regulated broker with a track record of securing funding and ATE for insolvency related disputes.

Annecto Legal has a very simple application form that allows us to scour the market for the best deal, ensuing our clients meet their professional obligations, save time and secure the right outcome.

We employ an in-house underwriter to pre-approve all applications and ensure that any claim has the best possible chance of being successfully funded and insured.

Mark Beaumont is co-founder of litigation funding and ATE specialists Annecto Legal Ltd, and has worked with many IPs to fund and insure disputes of all sizes.