Posted on the 1st May 2018

There are around twenty main markets for after-the-event (ATE) legal expenses insurance in the UK and thirty-plus providers of funding for litigation and arbitration.

Multiple products and approaches

Many of these firms offer multiple products, including portfolio funding, damages based agreement (DBA) funding and/or insurance, adverse costs insurance, disbursement insurance and/or funding, own costs insurance, work-in-progress (WIP) finance, practice funding, and of course non-recourse third party funding (TPF). [see www.annectolegal.co.uk for a full glossary of terminology]

Litigators that wish to access these products for their clients will discover that some providers are easier to work with than others, and that each prefers certain case types, jurisdictions, opponents, pricing etc. There will also be different attitudes to due diligence and expectations of what contribution a client should make to a budget (if anything) and what level of conditional fee agreement (CFA) they demand the legal team work to – if indeed they want any CFA at all.

Finding the right solution

There are pros and cons to such a congested market, with a major pro being the fall in price as competition has increased. However, navigating such a confusing space is not always easy, and will of course be harder if it is not something that your firm does regularly.

Insuring ‘own cost risk’ is a great way of minimising risk in a cost-effective manner. By using ATE to cover claimant costs, as well as the possibility of having to pay the defendant’s costs, the risk to any funder (whether client, TPF, or law firm) is reduced considerably.

With such insurance in place the costs of funding can be reduced by up to 90%. Whilst this is useful on larger cases, the rail gains here are on cases where damages range from £100,000 to around £5m. Because this model is less expensive to the client, it opens a rich seam of cases that might not otherwise have been economic to pursue.

Given the amount of money that clients must risk pursuing a dispute through the courts, it is common for litigators to attempt to chop cases into phases and give fixed fees to the client for each stage. Emphasis will usually be put on trying to settle the claim early, to avoid further costs.

This strategy could be successfully coupled with a low-cost funding product that would ‘boost’ the funds available and add momentum to the claim, which in turn should allow claimants to push toward settlement sooner.

Take a £350k contractual dispute as an example: The client is reluctant to pay the issue fee and become exposed to adverse costs risk. They decide with their solicitor to spend £30,000 on pre-action work and try and reach a settlement. If this approach fails then it’s back to the client for further funds, if they have any.

Assisting clients with limited funds

Given the amount of money that clients must risk pursuing a dispute through the courts, it is common for litigators to attempt to chop cases into phases and give fixed fees to the client for each stage. Emphasis will usually be put on trying to settle the claim early, to avoid further costs.

This strategy could be successfully coupled with a low-cost funding product that would ‘boost’ the funds available and add momentum to the claim, which in turn should allow claimants to push toward settlement sooner.

Take a £350k contractual dispute as an example: The client is reluctant to pay the issue fee and become exposed to adverse costs risk. They decide with their solicitor to spend £30,000 on pre-action work and try and reach a settlement. If this approach fails then it’s back to the client for further funds, if they have any.

Levelling the playing field

As an alternative, the £30k the client is willing to spend could be the total amount they ever need to spend on the case. By using the £30k to assess merits and damages, and perhaps flush out any defence, it should be possible to then fund and insure the claim all the way to conclusion. The client will now be negotiating with the defendant from a position of strength, knowing that the funds and

ATE are in place to instruct counsel, experts, pay the issue fee and ultimately to go to court if necessary.

Once the defendants are informed that the client has insurance and funding to see them through to conclusion, then they have a real decision to make about settling. Their previous attitude might have been that “this claim against us will wither and die as the claimant lacks funds to see it through”. Once that scenario is replaced with one where the defendant faces a deep-pocketed claimant with stomach for a fight then either the defendant will try to settle, or the claim can progress at a sensible pace now that funds are available.

The costs of doing nothing

If the claim is settled in the first few months then the claimant will give very little of their damages away to pay for the ATE and the limited funding drawn down, and should the claim run all the way to trial then the funders and insurers are carrying all the risk so the client does not need to “under settle” due to the absence of resources. The net position for the client is likely to be far better in this scenario than in one where the defendant drags the claim out knowing that the claimant has limited funds.

Ultimately, it’s very simple to ask about options and pricing: The solicitor meets their regulatory requirements and the client can make an informed decision about how best to proceed.