Against many odds, adverse costs cover is back in fashion and it’s proving to be a valuable tool in helping law firms attract new clients. Following the Jackson reforms, there were question marks over whether this type of insurance could withstand a non-recoverable premium, whether claimants would see the value in swapping their relatively unknown adverse costs risk for a fixed amount and whether insurers could write enough business to continue to offer the product on a competitive deferred premium basis. Fast forward several years and not only have many of these wrinkles been ironed out, but this type of insurance is now seeing a new lease of life as a way in which law firms can differentiate themselves in the eyes of the client.
This shouldn’t be surprising because, as a product, it makes very good sense. However, in recent years adverse costs insurance could often be found at the back of the cupboard hiding in the shadow of the funding and DBA revolution, remembered only if a litigation funder requires it to protect their Arkin risk or after a problem has appeared on the horizon.
So, what do you need to know about adverse costs cover?
- Cover ranging from £25k to £20m+ is available for cases enjoying good prospects of successfully receiving damages. Cover may be available for non-monetary claims if the client is willing to pay the premium.
- It can be difficult to insure low value cases. Since LASPO, the premium needs to be paid by the claimant from their damages and, as such, adverse costs cover is often not economically viable for cases valued at less than £30k. In addition, as a general rule of thumb, damages need to be at least 2x the amount of cover required.
- Deferred and contingent premiums are still commonplace, and most policies provide for significantly reduced premiums if the case settles early. Upfront premiums are available and can be an effective way to significantly reduce the cost. However, the majority of policies that we put in place carry a deferred and contingent premium at the request of our client. For larger limits, in excess of circa £4m, it is likely that the insurer or insurers will request a small percentage of the premium on an upfront basis with the remainder being deferred until the successful conclusion of the case.
- Cases requiring less than £100k cover can be fast tracked. We recently launched Accelerate, which enables commercial cases requiring less than £100k of cover and fitting agreed criteria to obtain quotes for adverse costs insurance from A rated insurers within 24 hours of making an application. Click here for more information.
- The client base has changed as a result of LASPO. Historically, adverse costs cover was purchased predominantly by individuals or small or impecunious businesses. With the sharpened focus on corporate legal spend, we have seen a significant increase in the number of applications we see from larger businesses and multinational corporates looking to keep their board happy by reducing or removing their adverse costs risk in return for a deferred and contingent premium.
- Adverse costs cover may be used to combat a security for costs application. If the opponent deems the claimant unlikely to be able to pay an adverse costs order in the event of a loss, they may use a security for costs application to gain comfort on their genuine concerns or in an attempt to stifle the claim. Adverse costs cover with a reputable provider may be accepted by the opponent or the court as an alternative to forcing the claimant to pay money into court. It is important to raise a potential security for costs issue when negotiating the insurance policy to ensure it is tailored to give your client the best possible chance of withstanding a security for costs application. A deed of indemnity may be required but such indemnities are significantly cheaper than obtaining litigation funding for the same purpose and, from the client’s perspective, is usually vastly preferable to paying cash into court.
- Adverse costs cover is cheaper and easier to obtain early on in the case. There is a balance to be found when advising clients on the need for adverse costs insurance. It is understandable that your client might want to hold off on applying for a policy prior to issuing proceedings. And it’s tempting to only consider adverse costs cover for those cases with a real risk of losing. However, in so doing, it must be accepted that insurers are less likely to offer terms and, if they do, the premium will be more expensive than it might have been if they had been given the opportunity to consider the case early on.
If you would like to discuss adverse costs insurance in general or in relation to a specific case, please contact a member of our team.