For an SME, choosing to pursue litigation is an exercise in risk evaluation. The assessment must be based on whether the cost, not only in money but also the time and emotional stress related to taking a matter to Court, is worth it when balanced against the likely damages which may be awarded.
And this is if you win the case.
Under general cost rules, an unsuccessful party in a litigation will be required to pay a proportion of the successful party’s costs. Given attending Court can run into tens of thousands of pounds per day, an adverse cost award can be financially crippling.
Fortunately, the growth in litigation funding options for SMEs has meant litigation can be pursued relatively risk-free. With solutions such as capping the amount a claimant pays at £20,000, owner-operators have the potential to realise the capital tied up in a litigation within an established budget.
Most Law Firms who work with clients to engage a litigation funder offer Conditional Fee Arrangements (CFAs, also known as ‘No Win, No Fee’). When entering into a CFA, you will be invited to take our After The Event (ATE) Insurance by your Solicitor.
What does ATE Insurance Cover?
ATE Insurance will cover your liability if you lose your case and a costs award is made against you. Depending on the policy, ATE Insurance may also cover the cost of any disbursements your Solicitor has incurred in bringing your case, such as obtaining expert evidence and paying barrister fees.
Who Organises ATE Insurance?
Your Solicitor will organise ATE Insurance on your behalf. This is normally done once they begin the claim.
ATE Insurance will protect claimants against costs established at the outset of the litigation process. Therefore, it is important not to delay putting the insurance in place, as costs incurred before the start date of the insurance will not be covered unless specifically provided for in the policy.
The Court of Appeal held in Motto v Trafigura  EWCA Civ 1150,  2 All ER 181 at 114 that a Law Firm cannot claim back the costs of liaising with an insurer and the setting up of ATE Insurance for their client. In addition, since 1 April 2013 and the introduction of the Jackson costs reforms, ATE insurance premiums fees are no longer recoverable*.
How Much Does ATE Insurance Cost?
The price of ATE premiums will depend on the details of the case. Fortunately, the premium will not need to be paid unless you win your case, and the earlier settlement is reached, the less expensive the premium is.
However, because litigation is inherently risky, ATE insurance does not come cheap. Your Solicitor will explain to you how much cover you will need and its estimated cost. As a very general ballpark figure, the cost of ATE Insurance tends to be 20-30% of the amount of cover purchased.
Will ATE Insurance Always be Granted by the Insurer?
Because litigation carries a high risk, an insurer will assess the case thoroughly prior to granting ATE Insurance. As a general rule of thumb, the prospects of a successful outcome need to be 60% or better before ATE Insurance will be granted.
What are the benefits of Combining Litigation Funding and ATE Insurance?
Many SMEs are skittish about pursuing a potential litigation matter such as a breach of contract, especially if the defendant is a big company or a local body; and with good reason. Taking on an entity with deep pockets carries enormous risk. Working with a litigation funder in conjunction with taking out ATE Insurance significantly mitigates the risk an SME carries should it decide to seek justice.
Having the backing of a funder and insurer can also add considerable weight to a claim, as the other side will be aware of the intense scrutiny the case would have received prior to securing funding and insurance. Having this type of backing will often encourage the other side to settle.
In addition, if your business has multiple disputes, your litigation book can be de-risked by obtaining funding and ATE Insurance on a portfolio basis, thereby allowing the litigation book to be treated as an asset as opposed to a liability on the company balance sheet.
Investigating funding and insurance options can give you the confidence to seek justice and reclaim damages to rectify the harm a negligent act or omission, breach of contract, or other civil litigation cause has resulted in your organisation suffering harm.
To find out more, please contact us on 0333 222 5731 or talk to your solicitor.
BMS Funding works with the legal profession and businesses to provide funding solutions for all sectors of the market.
*However, they may be recoverable in claims which began prior to this date.