How does after the event insurance work?
After the event insurance works differently from other types of insurance. Typically, most insurance is purchased on the basis that at some time in the future, an unexpected event may happen. When it does, it will cause the person or company that takes out the insurance policy to suffer a financial loss. For example, a motor insurance policy will kick in if there is an accident. A home or business insurance policy is purchased in case the building or its contents are damaged due to a range of incidents such as a fire, storm, theft, etc.
Most insurance is obtained by providing details of the item or event that insurance protection is required for, to an insurer. The insurer then calculates the risk of an event occurring based on their experience and statistics and quotes a premium. If that premium is acceptable, it is paid, and the policy is issued, and everybody hopes that nothing happens. Typically, 12 months later the insurance needs to be renewed and the process above is repeated.
How is after the event insurance different from normal insurance?
After the event (ATE) insurance is different. It is almost exclusively used in legal disputes. Unlike with traditional insurance, after the event insurance is issued after the actual event has already happened. For example, two parties may enter a contract where one of the parties supplies goods or possibly services to the other. Then one of the parties breaches the contract (e.g., supplies goods or services that are allegedly not fit for purpose as agreed in the contract or simply fails to deliver at all or withholds payment). So, unlike traditional insurance, the loss has already occurred. The challenge then is how the innocent party decides to proceed. If for whatever reason, the dispute cannot be settled, the wronged party may decide to take legal action to obtain compensation.
This is when ATE insurance becomes necessary. Pursuing litigation carries the risk that if the case is unsuccessful, the losing party will not only have to pay their own legal costs and disbursements fees. However, they will also have to pay the legal costs and disbursements for the other side. If the case is won, then the other side pays the winner’s costs (in a way it is really is a case of the “winner takes all”).
How are after the event insurance premiums assessed?
Unlike general insurers that have access to a wealth of statistics from their own records and from industry data, legal cases that are eligible for after the event insurance very much rely upon the specific issues of the individual case. For an after the event insurer to offer cover, they need a detailed explanation and understanding of the dispute. This process starts when the lawyer that has been instructed by the innocent party, completes a proposal form. In this proposal, the lawyer is asked to give an opinion on the chances of the case’s success. In many cases, the lawyer may seek advice, or the insurer may request, an opinion from a barrister who is an expert in the area of law that applies to the actual dispute.
The next step is to work out what limit of indemnity (cover) is needed. This is made up of two elements. The first is what the other side’s costs will likely be if the case is lost. The second is the likely level of disbursements the party pursuing the case will likely incur. These may be things like expert reports, issue fees, etc. ATE does not cover the claimants’ own legal costs that the lawyer will charge them to act on their behalf.
The chances of winning and the cover needed are then combined to calculate a premium. Typically, the premium is staged so that the earlier the case is settled the lower the premium will be. These points are usually triggered before proceedings are issued, after proceedings are issued, after full discovery and exchange, and then finally, and most expensive, less than 60 days before the trial.
When is after the event insurance paid out?
Once the policy is in force, the lawyers pursue the case and keep the insurers advised of any major events or changes. If the case succeeds, the ATE premium is paid at the end, normally from the damages awarded. If the case is lost, then the insurer pays the claimant’s disbursements and the other legal costs incurred by the other side. The premium is included as part of the claim which means that the loser does not have to pay anything, other than their own lawyers’ costs. Most ATE insurers insist that any lawyer acting for the claimant, do so on a “no win, no fee” basis.
However, one important factor should be noted. ATE insurance will only cover cases where a lawyer or barrister considers the case is more likely to win than to lose. Therefore, the assessment of the case by a lawyer and/or a barrister is vital to decide if the cover will be offered. This assessment is referred to as the prospects of success and insurers require this figure to be at least 51% and prefer to see prospects of success place at 60% or better if they are to offer a policy.
In summary, ATE insurance combined with a lawyer acting on a “no win, no fee” can give security that will give claimants access to justice, without the fear of facing a huge legal bill at the end of the case.
Contact us
If you are pursuing a litigation case for a claimant and would like to find out how ATE insurance works, or if you need help completing a proposal form for ATE insurance, then please contact us on 0800 524 4235 or email info@prosperityinsurance.co.uk
This is not legal advice; it is intended to provide information of general interest about current legal and ATE insurance issues.
