The Litigation Risk Transfer Market
..The Lord Justice Jackson effectJames Delaney
www.thejudge.co.uk
BTE Legal Expenses Insurance• Pre-paid (traditional) insurance to cover legal expenses in the event
that a dispute occurs (i.e. not applicable for existing disputes).
• Sold as an add-on to household/motor
• Jackson recommends greater take-up – Is it realistic?
• Limited cover/indemnity e.g. pi, clinical negligence, employment
• Commercial BTE - take up is nominal. • Access to Justice – Different mindset of BTE v ATE underwriters.
ATE Insurance
ATE – Jackson Implications
• Concerned premiums too high and used tactically to the detriment of paying parties.
• Recommending removal of recoverable additional liabilities i.e. success fees/ATE premium.
• One way cost shifting in personal injury + some other areas.
• Eradicate need for adverse cost insurance.
ATE Personal Injury Market Implications?
• Reduced ATE PI market.
• Disbursements only ATE insurance.
• Large question mark over the appetite of insurers to support a limited “disbursement” market. [ Mixed market opinion ]
• Premium for any disbursement only cover paid from client’s damages – Risk of adverse selection against insurers.
Commercial/Non PI ATE Insurance• Eradicating recoverability of premiums will prohibit clients’ ability to
insure and thereby pursue their cases - Why?
• Small business disputes – Proportionality Issues
• The Asia experience - Cost v Damages Ratio (good cases uninsurable)
• Cases with non monetary remedies won’t be insurable e.g. IP infringement proceedings etc…
• David v Goliath - Goliath can force a settlement at undervalue
Jackson ATE Impact Big Ticket Cases
• Concerned that big business can utilise a system intended for impecunious clients. Is the concern misguided?
• Greater propensity for global settlements inclusive of costs.
• Keeping recoverability for some but not others requires - means testing but how?
Would commercial ATE survive without premium recoverability?
• Yes but with a more restrictive qualifying pool of insurable cases + increased adverse selection risk.
Third Party Funding What is it?
– Professional Funder with no prior interest in case– Provides cash flow for legal costs– Share of proceeds
Cost to the client – 20-40% of damages?– 200-400% min return on investment?
– Typically works best in large disputes with a large damages v cost ratio.
Third Party Funding – Jackson Implications• Generally a thumbs up endorsement by Lord Justice Jackson.
• Removal of Arkin cap could prohibit funders.
• Funders are unlikely to be interested in bridging any gap for small business disputes left by eradication of recoverability.
• Funders in UK need buoyant ATE market to mitigate their adverse cost exposure.
• Restricting ATE market growth could inhibit the growth of the funding market.
Litigation Buyout Insurance (AKA Outcome Hedging / Stop Loss Policy)
What is it?• Defendant client facing actual or possible litigation• Policy providing hedge on risk by capping potential liability at
a certain level• Insured’s retained element of risk (retention/excess)
Jackson implications? None.
The Future of the Market? • Hedging legal costs is here to stay both in the UK and
internationally.
• Individuals, SMEs and large blue chip clients – Continual education/promotion of “hedging risk” by lawyers/funders/insurers
• Huge international growth ahead with litigation insurance being applied in Asia, Australia, Canada, Europe and US.
• Insuring attorney fees in the States provides an economic alternative to contingency fees.
• Continued growth of litigation funding – albeit restrictive market in comparison to the size of the litigation insurance market.