Avoiding Negligence Claims for Failing to Advise – ATE Insurance
There can be no doubt that advising client’s on the availability of After the Event (“ATE”) insurance for their case is best practice. Not only is it required under the SRA’s Outcome Focussed Regulations[i], but firms like Irwin Mitchell [ii] and Clyde & Co[iii] have recently been in the press speculating that failure to advise on ATE insurance and funding options is likely to give rise to professional negligence claims against solicitors.
The obvious benefits of advising on ATE insurance from a firm’s perspective are that it ensures the firm is in compliance with SRA regulations, and mitigates the firm’s risk of a negligence claim arising directly from failure to advise—however there are advantages and knock on effects of advising on ATE insurance which are less-obvious, but can provide serious commercial and reputational benefits for a firm.
Improved Solicitor-Client Relationships & Potential Decrease in the Problems that Lead to Professional Negligence Claims
Many solicitors find it difficult to point out, and speak in depth on the weaknesses of a case with a client. Fee earners may find it tough to speak frankly with clients and address the realistic merits of the case, as clients can often react badly to any criticism of their claim by the person who they view to be their source of advocacy. Clients can be (rightly or wrongly) sceptical of a solicitor’s ability to adequately fight in their corner, where that solicitor seems too critical of the case. On the flip side, being overly-positive about cases can lead to clients who later feel they weren’t adequately advised of the risks of their case when things go wrong, or their recovery is not what they expected.
The independent views of a third party ATE insurance underwriter can help to manage client expectations, and provide a way of easing into a conversation with clients about weakness in the case. Insurers will not only flag up issues of merit, but also proportionality (the cost of running the case vs. probable case value) – which provides fee earners with the perfect opportunity to explore cost/benefit analysis with clients, leading to fewer surprises for client later down the line. Preparing an accurate budget at the outset, can also help the client and firm to come up with a ‘game plan’ and agree things like, settlement figures before the litigation heats up.
ATE providers will consider most case which the firm considers to have greater than 60% prospects of success. Insurers can help to provide a neutral view on cases where a fee earner may have a slight cognitive bias because of their direct interaction with the client.
Furthermore, Insurers will expect an accurate estimate of quantum, adverse costs, and the costs to take a case to trial, in order to assess the proportionality of the case and the appropriateness of ATE. This can reduce issues associate with shortfall in recovery.
It’s important to stress that ATE insurance should not be considered as simply being an adverse costs protection. Own disbursements and own side solicitors’ fees can also be insured. Limiting any client discussion to adverse cost insurance could in itself be negligent on the firm’s part. Any client who loses a case, and who wasn’t advised about potential insurance options, could potentially have a claim against the law firm to recover the legal costs they’ve incurred. In today’s market with such heavy publicity surrounding insurance and funding, it’s simply not worth the risk to omit a comprehensive discussion about all the client’s options.
Following Best Practice
The easiest way to follow best practice for advising on ATE insurance, is to make sure the clients are aware of the availability of ATE in every case where it may be available. If you think it is unlikely to get an offer of ATE insurance – it may be worth consulting one of our specialist brokers on a quick phone call to ensure you are giving the correct advice. Sometimes ATE Premiums can be structured in way to make even non-monetary claims viable for ATE. Contacting a broker can prove helpful, as insurer’s appetites for cases can vary significantly (e.g. three insurers may advise that they don’t consider a certain case type, while another insurer may be perfectly willing to offer cover). Approaching a broker is also economic for clients as it can provide a complete market overview, while ensuring that the fee earner concentrate on the underlying case, and wastes no billable hours approaching ATE insurers.
[i] See The Solicitors Regulatory Authority’s Outcome Focused Regulation 2.03(g) “You must give your client the best information possible about the likely overall costs of a matter, both at the outset and, when appropriate, as the matter progresses. In particular you must: . . . (g) discuss with the client whether their liability for another party’s costs may be covered by existing insurance or whether specially purchased insurance may be obtained.”
[ii] “…although there is no concluded case on this point, that a failure to advise on ATE insurance is likely to be negligent. There are cases which are presently being settled without proceeding to court on this basis.” – Jonathan Sachs (Irwin Mitchell) 8 June 2014.
[iii] “There is a likelihood that we will see claims relating to the failure of litigation lawyers to advise claimants on all of the funding options in relation to a claim.” Clyde & CO UK: Lawyer’s Liability Briefing Summer 2015.