Commercial ATE Insurance
Commercial after the event (ATE) insurance is a very popular risk transfer mechanism for many commercial contract disputes, and arbitration hearings. Although technically an optional purchase, if a litigation funder is also involved in your case, then ATE insurance will probably be compulsory.
Commercial ATE insurance can provide an indemnity for many types of dispute, including;
Commercial Contract Disputes, Insolvency, Debt recovery, International Arbitration, Construction Disputes, Intellectual Property, Shareholder Disputes, Group Actions, Competition Law, Cartels, Professional Negligence, Property disputes, Privacy & Defamation actions, Patents & Copyright, to name a few.
Depending on the clients attitude to risk, and ability to pay any own sides and/or adverse costs if the case were to lose, clients can usually pick and mix the type of cover and level of indemnities they require.
ATE insurance policies indemnify the insured against;
adverse legal costs and disbursem*nts if a legal dispute is lost or discontinued,
cover can also be provided for own disbursem*nts,
own counsel’s fees can also be included if required.
Some ATE insurers will also provide an element of own lawyer’s fees (usually between 25%-75%), and on some occasions the legal dispute in question may also require a deed of indemnity to be provided by the insurer before the case can begin or continue if security for costs issues are in question.
Clients, with the help from their lawyers, will decide on which elements of cover are required, and also on the estimated overall potential loss if the case were to lose at trial. This potential loss figure or EML (Estimated Maximum Loss), is usually the amount (limit of indemnity) that would be sought from an ATE insurer before proceedings are issued.
Ideally commercial ATE insurance should be taken out at the start of the formal dispute (from an insurers perspective anyway) but we know this doesn’t happen in reality. Some lawyers will try and run the case up to proceedings being issued uninsured, on the basis that if it settles, the claimant would be left with more of their award, which is true.
However, the costs risk changes once proceedings are issued, as the claimant is then liable for the other sides costs if the case eventually fails, or is discontinued or abandoned. This usually focuses the clients and the lawyers minds on risk mitigation, and a commercial ATE insurance policy will then be sought.
Commercial ATE Insurance Risk Assessment
When a lawyer submits a case for commercial ATE insurance, the underwriter will usually follow some sort of risk assessment process, containing the following processes;
Step 1
The submitted legal case is reviewed and many are filtered out for simply not fitting within the underwriters prescribed risk appetite.
Step 2
The underwriter/s will review the submission to ensure all the appropriate documentation has been provided. This is likely to include;
A completed commercial ATE insurance proposal form
A statement / summary of the case
Letter of claim, and any reply
Pleadings
Counsel’s opinion, with prospects of success noted as a % figure
Any other relevant information, reports etc.
Any disbursem*nt funding or litigation funding agreements.
Step 3
The underwriter/s will then review the case in detail looking at the following criteria; is the case type within risk appetite? Is the case jurisdiction within appetite? Are the solicitor & counsel experts in the field? Is the case nearing trial? Are the legal merits of the case 60% or above? Is the premium likely to be affordable and proportionate? Is the minimum costs to damages ratio 1:4 or greater? Is the defendant able to satisfy any judgment? Is the judgment enforceable? Is the LOI (limit of indemnity) required within appetite? What retainer (CFA, DBA, fee paying) is in place with the solicitor? Is limitation clear or problematic?
Step 4
If the underwriter/s are not satisfied with the overall merits of the case, it is declined. Approximately 70% - 80% of commercial cases that are submitted for ATE insurance are declined along the way.
Step 5
If the underwriter/s agree the case meets the requisite merits for acceptance, they would then propose premium rates in accordance with their firms underwriting rating guidelines. There are many different rating structures and options, but the most basic example is simply a rate on line percentage multiplied by the limit of indemnity sought, for example 50% x £1m = £500,000. (plus IPT of course!)
Step 6
The quotation is issued, and the client usually has up to 30 days to accept, before terms expire and a new quotation will be needed.
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