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What is ‘after the event’ insurance?

This business briefing explains what after the event (ATE) insurance is and highlights its main advantages and disadvantages for a business.

What is ATE insurance?

ATE insurance is a type of legal expenses insurance policy that provides cover for the legal costs incurred in the pursuit or defence of litigation and arbitration. The policy is purchased after a legal dispute arises.

It is distinct from pre-purchased before the event insurance policies which are commonly purchased with, for example, house insurance.

ATE insurance can be purchased for nearly all areas of litigation, with the exception of matrimonial or criminal law.

ATE insurers offer a variety of cover tailored to the specific needs of the client. It typically covers:

  • a business’ own disbursements; and
  • liability to pay an opponent’s legal costs if the opponent wins.

When is ATE insurance available and appropriate?

Not all cases are appropriate for ATE insurance, nor will insurance always be available (at least not at a sensible price). ATE insurance is:

  • Available to claimants and defendants.
  • Generally only available where there is no fixed recovery rate.
  • Unlikely to be provided where the case involves novel issues (and if offered, premiums are likely to be very high given the additional risk).
  • Limited to English court litigation and domestic arbitrations and tribunal work. It cannot cover matters in other jurisdictions because of recoverability and regulatory or licence requirements.

What are the main advantages of ATE insurance for a business?

It removes the risk of a business having to pay the other side’s costs (and if covered, its own costs and disbursements) if the business loses the case. The business will have a good idea of the downside in the form of the cost of the insurance premium as soon as a quote is obtained.

It provides an incentive for the other side to settle, as they will know the insurer conducted a separate analysis of the merits of the case or defence. Having ATE insurance in place also sends the message that the business is in the litigation for the duration, having already minimised the litigation costs risk.

ATE policies can be arranged at any stage of the case, although they may be more difficult and expensive to secure later in the process.

What are the main disadvantages of ATE insurance for a business?

Most insurers will require a separate assessment of the business’ case. The cost of that assessment will initially be borne by the business, although if the insurance goes ahead, it will usually be absorbed by the premium. Insurers will not fund cases that are unlikely to succeed.

If, at any time during the course of the proceedings, the likelihood of success falls below the insurer’s minimum percentage (often about 60%), the insurer will probably withdraw the cover.

The policy will contain a list of exclusions which the business should read with care. Standard exclusions include:

  • misrepresentation or fraud;
  • discontinuance due to lack of funds; and
  • insolvency of the business’ opponent.

Some insurers may insist on agreeing an acceptable settlement figure at the outset. This means that permission from the insurer would be required if the business wanted to accept a sum below that figure. Similarly, the insurer’s approval would usually be required before abandoning proceedings by consent or discontinuing the proceedings.

In general, achieving settlement can be more difficult where ATE insurance is in place. In addition to requiring consent, the insurer will be keen to ensure their interests are protected and may insist on being involved in the settlement process.

An ATE policy may not be sufficient to defeat an application for security for costs by itself.

Where the policy is issued on or after 1 April 2013 and it does not relate to an excepted case, the client will have to pay the ATE insurance premium, even if the client wins its case. The excepted cases are:

  • insolvency-related proceedings.
  • publication and privacy proceedings; and
  • claims for damages in respect of diffuse mesothelioma.
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