ATE insurance: why do you need it, top tips, and what happens if the insurer declines indemnity?

ATE insurance: why do you need it, top tips, and what happens if the insurer declines indemnity?

ATE insurance (After the Event Insurance) broadly covers the risk of paying the defendant's costs of an action if the case fails and the client's own disbursements (cost of an experts report or Court fees), depending on what is set out in the policy.

My experience with ATE has covered many different areas of law including personal injury, clinical negligence, professional negligence, commercial litigation, housing and general litigation.

The first stage of choosing a policy is to make sure you are working with a Trusted A rated insurer. There have been notable examples in the last few years of some insurers going bust and leaving the policyholder in the lurch.

Any ATE insurer will look at claims on risk, and some law firms will have delegated and none delegated policies. A delegated policy will allow the law firm to insure a block of case (usually at a cheaper rate benefiting the client as they are covering many cases) and the law firm can take certain actions on a case without having to report at every stage, albeit these policies will still require reporting at key stages, such as issuing proceedings, any offers that come in, discontinuing and authority to proceed to Trial. A none delegated policy will usually require significantly more reporting and will usually be required on larger commercial cases or cases that have more complexity.

It is a key requirement that the law firm and client make sure they are aware of the reporting requirements and that they are met, as a failure to do so may mean the insurer can decline a claim under the policy. There are certain things that cannot be helped, if the client goes AWOL or ceases to provide instructions, that is likely to be a breach of most policies.

The other issue to look out for on any ATE policy is that it provides sufficient coverage on the likely costs of the client's own disbursements and defendant's costs exposure, if the action were to be lost. We have seen in practice some of the cavity wall claims for example progressing to Trial with only ￡25,000 of cover, when in reality they needed ￡50,000 to cover all the costs to trial. It is important to make sure the correct level of cover is selected at out outset as the reality we have found is that top up cover is more difficult to obtain later.

Solicitors have a duty to advise on obtaining insurance products to cover the risk of litigation. The reality is that even with QWOCs, if a client fails to beat a part 36 offer the defendant has made, they can end up paying the defendant's costs from damages, but outside PI/ clinical negligence where costs are at large if a claim fails, the cover is certainly required (or at least to be considered) to avoid the risk of adverse costs and incurred disbursements.

The other consideration is cost. A policy is likely to be cheaper at the outset, where the insurer is taking a broad view of the risks of the case, rather than attempting to get insurance once proceedings are issued. Many insurers will often stage premiums and there will often be a discount for settlement at a pre issue stage, the reason being the closer a case comes to Trial, the bigger the costs risk. If you are looking at say a piece of professional negligence litigation valued at ￡100,000, the premium is going to be more significant as there will be a large costs risk if it fails and the more complex the litigation, generally the bigger the costs risk.

The final issue we sometimes see is the ATE insurer declining indemnity. We have seen one or two ATE insurers in the past declining indemnity for reasons which were not a valid reason for a policy decline under the contract, sometimes without even looking at the file. If an ATE insurer takes the risk on a case and prospects change, that it is not usually a good enough reason to decline indemnity and recourse can be had to the financial ombudsman. Insurers have a duty to treat policyholders fairly under the Insurance Act 2015.

If the prospects of success of a claim significantly change, tell the ATE insurer and get authority to proceed before ending the action and making a claim. We have found in practice some instances of claims going to Trial, where the insurer knows nothing about it. A good tip is to send the insurer a copy of the Trial bundle, counsel's advice and any offers so they can review any risks for themselves on the claim and whether to grant authority to proceed.

A good law firm and ATE insurer will work in partnership on cases, in terms of the risk of a batch of cases.

There are a few tips to look out for:-

1. Get an early advice on prospects from Counsel. It will be significantly easier to insure a case if there is a positive advice on prospects of success- most ATE insurers will require 51% plus on breach of duty and causation. I have experience of drafting these in many areas.
2. If an insurer declines indemnity - its is useful to get an advice from Counsel as to the merits of the ATE claim and whether there was good reason to decline indemnity. The advice can be used to persuade the insurer to pay or support a claim to the FOS. I have experience of drafting such documents with successful outcomes, where claims have been declined initially.
3. Keep your insurer updated in terms of the conditions of the policy- this is the issue that causes most problems. Counsel may be able to help review prospects on a case where prospects have changed and whether it should go to Trial or not. I do this on a regular basis.

Andrew Mckie Barrister is able to assist on the above matters. We also have experience of advising ATE insurers / funders on whether cases should have been put on cover at all when considering the issue of indemnity and policy compliance by the law firm. Contact [email protected] or phone 07739964012.

This article should not be relied upon as legal advice. If you have a specific set of facts you need assistance with, contact a qualified lawyer.