It is no secret that going to court is expensive, that is why civil litigation solicitors will always try and encourage settlement through alternative dispute resolution (ADR) methods such as negotiation, mediation, adjudication (for construction and professional negligence disputes), and arbitration.
ADR is generally quicker, cheaper, and less stressful than formal litigation, sometimes the former does not result in a solution making the latter inevitable. You can, however, mitigate your risks by taking out After The Event (ATE) insurance.
In this article, we explain what commercial ATE insurance is and how it applies.
What is ATE Insurance?
ATE insurance is a type of insurance policy that covers the policyholder for legal costs when they are pursuing or defending litigation or arbitration.
When you instruct a solicitor on a civil litigation matter they have a duty to discuss how you will pay your legal costs. This includes whether it is possible to take out insurance against having to pay a portion of the other side’s costs should you lose the case.
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What is the difference between ATE insurance and BTE insurance?
Before The Event Insurance or BTE insurance is a type of legal expense insurance that is taken out before the prospect of legal proceedings arose. It is sometimes included in house insurance or car insurance policies. BTE insurance covers some or all of your potential cost liabilities in any subsequent legal proceedings.
ATE insurance, on the other hand, is purchased after a legal dispute has arisen and is normally arranged by your solicitor.
At LawBite, our civil litigation team will always check to see if you have an existing BTE insurance policy before applying for ATE insurance as failure to do so can result in your ATE insurance not responding.
What is covered by ATE insurance?
Almost every type of litigation dispute can be covered by ATE insurance, except for criminal and family litigation. Depending on the type of policy you take out it can cover your legal costs, the proportion of the other side’s legal costs the court orders you to pay if you lose your case, or both.
ATE insurance can include costs incurred before the inception of a policy and the amount of cover available ranges from a few thousand to millions of pounds. Adding to the flexibility, it is even possible to increase the level of cover in stages as the case progresses.
Can I recover the cost of the ATE premium from the other side?
ATE insurance taken out before 1 April 2013 may be recovered in whole or in part from the other side if you win your case. How much you can recover will depend on the reasonableness and proportionality of the premium and cover.
If you applied for ATE insurance after 1 April 2013, you will not be able to recover the cost of the premium in a commercial litigation case unless the matter falls under the limited exceptions of certain insolvency, defamation, or mesothelioma claims. A portion of an ATE insurance premium covering an initial expert witness report on liability and causation in a clinical negligence claim may also be recoverable from the other side.
What are the advantages and disadvantages of ATE insurance?
A few of the advantages of ATE insurance include:
- You will be protected from paying the other side’s court fees and legal costs should you lose your case. This is significant as many small businesses resist bringing potentially valuable claims due to fear of being exposed to an adverse cost order. ATE insurance removes this risk.
- Disclosing the fact that you have taken out ATE insurance can motivate the other side to settle early because, a) they will know that the insurer has conducted a separate analysis of the merits of the case or defence and, b) it demonstrates that you are prepared to take the matter to court and have taken steps to mitigate the associated risks.
- ATE policies can be taken out at any stage of the matter, however, the costs will increase if a policy is arranged during a later phase of the case.
Some of the disadvantages of ATE insurance include:
- ATE insurance is expensive. You will need to balance whether or not taking out a policy is worth the financial risk. Your solicitor or law firm is best to advise you on this.
- The insurer will undertake an independent assessment of the merits of your case. If it believes there is a limited prospect of success you will not receive cover.
- If at any time during proceedings the likelihood of success falls below the insurer's minimum percentage (often 60%), the cover is likely to be withdrawn.
Is After The Event insurance worth it?
For a small business with a possible litigation claim, ATE insurance can make the difference between whether or not you can risk launching legal proceedings. Our civil litigation solicitors can advise you on all aspects of ATE insurance and ensure your best interests are protected when applying for and accepting cover.
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