PI Brief Update

What Next for ATE? - Alexandra Anderson, RPC

14/07/13. The introduction of the Jackson Reforms has fundamentally changed the landscape of the litigation market. No more can a claimant take out After The Event Insurance at whatever cost insurers might choose to charge, safe in the knowledge that, so long as the claim does not fail, the defendant will be paying that cost. Whilst lawyers acting for defendants will be celebrating the introduction of the changes, those on the claimant's side of the fence will have very different feelings. But what about the insurance industry, which has been making considerable returns on the ATE product it has been selling to claimants over the last 10 years?

Some have suggested that the ATE market will be wiped out by the changes. That is highly unlikely. Whilst there may be some consolidation within the industry, there will always be a market for insurance wherever there is a risk and, as all litigation lawyers know, there is always a risk in litigation. What is likely to happen is that insurers will have to review their pricing structures and the type of cover they will provide, whilst looking for innovative ways to maximise their margins, despite the fact that their clients are likely to be considerably more discerning when considering their options for insurance.

That is evident by the fact that there has been a host of new and revised products launched in the run-up to 1 April 2013, and since. This reflects insurers' confidence that claimants will still wish to take out insurance, to protect themselves against the risk that a claim fails. The key issue for insurers is that claimants are likely to be infinitely more price sensitive than they have been in the past, now that they will actually have to pay the premiums themselves.

Where personal injury litigation is concerned, there is no doubt that the introduction of qualified one-way cost shifting (QOCS) will significantly reduce the risk for claimants in the event their claims fail. However, the provisions of the new rules will not totally eliminate the need for insurance as they still allow for defendants to recover their costs from claimants, in certain circumstances, and whilst it is very rare for a claim to be struck out on the basis that this is an abuse of process, to trigger an adverse costs order, there is a real risk for claimants should they refuse to accept a Part 36 Offer which they then fail to beat at trial. This is a risk against which claimants may well wish to take out insurance, particularly if the value of the claim is significant and the defendant's costs of conducting its defence may also be substantial.

The issue of the value of the claim will almost certainly become of ever-increasing significance, not just for clients and the lawyers acting on their behalf, but also for insurers. This will be particularly the case now that the courts are actively managing the costs of litigation, to implement the requirement that costs should be proportionate to the value of the claim. Active costs management does have the benefit for those purchasing insurance of giving greater transparency of the potential downside of litigation, which should in turn lead to a much better understanding of the costs risks involved in a claim and therefore more competitive pricing. Gone are the days when a claimant would take out a policy with a limit of indemnity of £250,000 for a claim of the same value, because that claimant will know that, even if the claim fails, it is highly unlikely that it will face an adverse costs order for such a significant sum.

Whilst some insurers are still prepared to offer deferred premiums, others are now offering damage based agreement style premium options, to allow the claimant to defer any premium payment until they have an award of damages. It is likely that, where insurers are prepared to agree such a deal, it will only be for claims worth a substantial sum of money, and where the percentage to be deducted is also quite substantial. However, this model is unlikely to work for lower value claims, where the likely return is going to be too small to attract investment from the insurers.

In summary, any rumours of the demise of ATE insurance are greatly exaggerated. Whilst the risk profile of personal injury claims has changed quite significantly with the introduction of QOCS, some claimants may still wish to protect their position, particularly where the defendant has made a Part 36 Offer that might put them at risks on costs. Whilst the market may contract, there will always be a place for good products sold at competitive rates and there will always be insurers ready to innovate to find new products that will sell to those involved in litigation.

Alexandra Anderson is a Partner in leading City law firm RPC
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A version of this article originally appeared in the Solicitors Journal on 7th June 2013.

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