After the Event Insurance FAQ
What does the policy provide?
The policy is fairly straightforward. It can be seen that:
- The premium is conditional upon the Insured achieving a successful outcome;
- There is no exclusion in respect of interim costs orders;
- There is the option in the policy of agreeing a successful outcome at the inception of the policy so that the client, unless there has been some material alteration in the prospects of success, is not obliged to take any offer that falls below the acceptable outcome;
- Cover will not generally be given for costs incurred prior to the inception of the policy.
- Cover is not given for your own Solicitors' costs.
- The sum insured is agreed at the outset being the best estimate of the costs to trial.
- The premium is staged so that depending on the stage the case has reached only the relevant percentage will be payable.
When should I take out the policy?
The premium to be paid will be expressed as a percentage of the estimated costs to the end of the hearing. As stated above, as an incentive to take out the policy early, cover will not generally be given for costs that have been incurred prior to the inception of the policy, although it might be possible to extend the period a little by negotiation, perhaps the date of the proposal form.
With the latest MOJ proposals to terminate the right to recover the premium from unsuccessful defendants there is now an added urgency.
What happens if I win?
If you win, assuming you will recover from the Opponent, the Underwriters take first charge on the recovery to the extent of the premium. If the amount recovered by way of costs and damages is less than the amount of the premium, then the premium abates to the amount actually recovered.
Who manages the Scheme?
The Scheme is managed by Collegiate. They will provide a report to Underwriters on each new applicant, with a report on the summary of the case and their recommendations. An applicant may be charged an assessment fee plus VAT, to be paid in advance. If there is an assessment fee, it will be retained if the insurance is not quoted or not taken up within fourteen days of the quotation, but otherwise held as an “on account” payment for the premium due under the relevant declaration.
What will Collegiate do?
Collegiate administers all policy-handling matters on the insurers behalf. Although the policy wording seems to suggest that the Scheme Manager will interfere in all aspects of the claims handling, in fact Collegiate aims to assist the client in achieving a successful conclusion of the case by taking a light touch approach and acting in a constructive and timely way, in a co-operative spirit without seeking to run the file or unreasonably second-guess the professionals' advice.
What types of actions can be supported?
Classic types of action that might be supported would be:
- Claims against directors arising out of insolvent trading or wrongful payment of dividends; Disputed debts;
- Claims against former customers or suppliers of the company;
- Claims against insurers who have wrongly refused an indemnity;
- Preference transactions as an undervalue;
- Tracing to pursue property belonging to a company;
- Professional negligence actions against those who previously advised the company;
- Passing off;
- Breach of confidentiality or theft of intellectual property;
- Breach of restrictive covenants by senior personnel.
How will the case be assessed?
The rating methodology would be to look at each case on its merits. The prospects will originally be vetted by Collegiate who if they consider it to be likely to obtain insurance will submit it to the underwriters for a quotation.
Does my Solicitor have to be on a panel?
No. Your Solicitor will be pleased to know that there is no need for them to become a member of a panel or be vetted in any way.
Will I get my premium back?
Because the policy has been written in a fairly straightforward manner, as long as the premium is competitive, there should be no issues on recoverability. However under the MOJ proposals there may soon be no right of recovery as the government has indicated its intention to adopt the recommendations of Professor Jackson's report in their entirety.
Section 29 of the AJA specifies:
"Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy."
A receiving party will be entitled to place evidence before the court from their insurer to demonstrate costs reasonably covered by the premium. The circumstances in which the whole premium will be recoverable will have to be determined by the courts when dealing with the individual cases.
The Courts seem to have ruled that premiums, which cover the following elements, are potentially recoverable from the paying party:
- Both sides costs cover
- Risk of failing to beat Part 36
- Losing an interim application
- Any adverse costs order
- Own disbursements
- The premium itself
- Any shortfall of premium on assessment
- Deferred premiums
- Retrospective cover
- The Ashworth case
- Policy offered 6 months before trial
- £125,000 cover BSI proposed
- Premium of £46,000
- Opportunity given to other side to settle
- On assessment, held that retrospective premium could be recovered in full.
Section 11.10 of the relevant practice direction provides a five-part test as to whether the cost of insurance cover is reasonable:
- The level and extent of the cover
- The availability of any existing LEI cover
- Any rebate for early settlement?
- The amount of commission payable to receiving party or his solicitor of agents
- Where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its costs compares with the likely cost of funding the case with a CFA with a success fee and supporting insurance cover.
We believe that the premium should be recoverable. The Court accepted in the Pursuit Test case that there was no problem on recoverability by virtue of the fact that the premium was expressed to be conditional upon a successful outcome.
The sum insured and premium is based upon an estimate of the Opponent's costs and further provides for a reduced premium in the event of an early settlement. This approach is intended to satisfy the crucial tests laid down by the Courts.
The conditional nature of the premium means it will only be paid to the extent that either the costs are recoverable or there is an award of damages available to satisfy the premium.
How much cover can I buy?
Cover can be provided for a limit of indemnity up to £3,000,000. The amount of cover will if applicable be split between Opponent's costs and Own Disbursements.
What is the relationship between a successful outcome and the agreed settlement amount?
At the outset of the case the Insurer may agree with you a basis on which, all things being equal the case should be settled. This protects you knowing that lesser offers need not be accepted. If a greater offer is made, then Underwriters would normally expect the offer to be accepted but cover can be extended at that stage by negotiation if there is a change in circumstances whereby a more favourable view of the merits can perhaps be taken.
Insurers gain the protection of knowing they will not be exposed to an undue level of risk without any control.
Is it a requirement that the Solicitor works on a CFA?
It is not a requirement that the Solicitor should work on a CFA but obviously if he is insisting on his fees that may reflect Underwriters' risk assessment and also the costs will have to be funded.
Can the Underwriters provide security for costs?
It is hoped that the existence of the After the Event policy would persuade most courts that the action should continue and not fail merely because of inadequate resources. In cases where security for costs is ordered it may be possible to provide security from other bonding insurers, although a premium would have to be paid.