Cost shifting in treaty cases? Step-up Adverse Cost Insurers

As little as three years ago most law firms referring treaty cases to TheJudge, were either seeking funding or some form of insurance hedge for the lawyer’s own fees.  Adverse costs was never really a consideration. The general view of applicants was that tribunals rarely made adverse costs rulings.  However, in 2015 the situation is markedly different.

Helpful research by Allen & Overy* has highlighted how the landscape has changed.  In 2014 the statistics showed that some form of cost shifting occurred in 44% of all cases, and that figure is believed to have risen since.

On the basis that each party, on average, incurs around $4.5m of fees, the risk of an unsuccessful arbitration ultimately costing $9m (assuming a cost order for the full sum) could well be unpalatable for some.

The use of third party funding in treaty cases is on the rise. However, consideration of insurance options should not be limited to those claimants who have expressed an interest in funding.

To give an analogy to the UK litigation market where cost-shifting (adverse cost) insurance is common, a significant volume of claimants who approach us for adverse costs cover are not seeking funding. That is they could well be blue chip entities who are privately financing their case, but nonetheless wish to remove the adverse cost risk from their balance sheet using a traditional insurance route.

Accessing Insurers:

At TheJudge we access a specialist market of international insurers who are able to consider adverse costs insurance for investment treaty cases.  Cases can be underwritten by a single insurer or a syndicate of insurers. Much will depend on the appetite of the market for the case in question. Where applicable, these insurers can also consider providing a bond to satisfy any security for costs issues that may arise.

How Premiums Work:

The premium for adverse costs insurance is typically a significantly lower price than the returns expected by funders for providing a comparable indemnity. Most insurers can offer clients a range of premium options, including options where a significant part of the premium is contingent upon success.  A contingent premium means if the client is unsuccessful in their case, and subsequently faces cost order, the insurer doesn’t receive a premium and yet remains liable to pay the claim.

How much cover is available and when to purchase?

Policies can be taken out for part of the exposure or the whole exposure.  An application for cover can be made at any stage.  The most common time to apply is after the expiry of any cooling off period after filing the Request for Arbitration or following receipt of a counter-memorial.  However, it can be possible to secure cover right up until commencement of the hearing.  As a general rule the client will have a better prospect of securing cover at a lower rate if they incept a policy well in advance of any jurisdiction or merits hearing.

Subject to the continuing good prospects of success and the economics involved, it is also possible to arrange “top-up” insurance to increase the cover if costs exceed original expectations.

How long does it take to secure cover?

Insurance can generally be arranged in a much faster timeframe to funding. Insurance, whether for adverse costs or own side legal fees, can typically be arranged in less than a month.

Contact us to discuss your case:

If you have a client potentially in need of adverse cost insurance or indeed own side’s insurance cover, then please contact:

Matthew Amey:

James Delaney:

James Blick:

Tel: (0)845 257 6058
30 St Mary Axe