On 6th October 2011, the SRA’s new code of conduct came into force. Section IB 1.16 of Chapter 1 Client Care ‘indicative behaviours’ states that lawyers must discuss the insurance and/or financing options available to all clients. This obligation existed previously under Rule 2.03 of the Solicitors Code of Conduct but crucially, the new code expressly states that lawyers should provide ‘clients with the information they need to make informed decisions’.
The sentiment behind this provision may not have changed greatly from the last code to the new one but the words “informed decision”, which did not appear in the earlier code, provides sufficient scope to potentially ensnare solicitors who may not be going far enough to explain the funding options to the client.
• How much information do solicitors need to provide to satisfy the SRA that the client has been empowered to make an informed decision?
• Do lawyers already have the up to date information about the world of ATE insurance and litigation funding that they need to meet this obligation?
• With the Legal Aid, Sentencing and Punishment of Offenders Bill 2011 (LAPSO) , isn’t ATE insurance only of short term relevance because premium recoverability is about to be abolished? How far does a solicitor need to go to familiarise themselves with the details of a market given imminent reforms threaten to destroy it? Will there even be a market to inform people about?
It is banal to say that solicitors need to understand what ATE insurance is and ensure that their client does to. That must be a basic expectation of the code. It is also obvious that whatever the future brings the client’s need to receive the funding information that is relevant to their options now. Until the LAPSO Act is passed, assuming it is passed, the recoverable nature of the ATE premium must still form part of that advice.
It is less obvious to commercial litigators that they should also explain to their clients that the premiums are usually only payable if the case is successful. This is also means in the vast majority of cases the premium is deferred until the outcome is known. Despite this being a very standard feature of commercial ATE policies over the last 5 years (at least), some commercial litigators still do not tell their client about this crucial feature, which is a fundamental element of what constitutes an informed decision.
Commercial litigators who service large companies and even government departments may be forgiven for not acquiring the same level of knowledge as a litigator involved in high volume civil litigation. However, whilst a CFO of a major corporate might have deep pockets, he is entitled to same information about the funding options as individual client. ATE insurance with deferred and recoverable premiums applies just as much to business disputes and it is highly unlikely that the client is going to obtain this information from any source other than their lawyer. The market is far too specialist to be widely appreciated by the general public and indeed, many in-house lawyers.
Likewise, some solicitors seem to restrict ATE insurance erroneously to adverse costs. Such a restriction is out dated and these days an informed decision should include a discussion about cover for own disbursements and potentially a proportion of own solicitor’s fees (whether or not the firm is on a CFA).
Solicitors sometimes mistakenly assume that ATE insurance is only available where they are acting under some form of full or partial conditional fee arrangement. In the modern market for commercial ATE that is not true. Underwriters will consider a CFA as a positive signal that the solicitor is confident in the case but over the last decade many good cases have been insured without the lawyers taking risk. It is still important that the insurer has some risk alignment with the client in the absence of a CFA so that the insurer is not the only party at risk otherwise such a situation can lead to a moral hazard.
Whilst neither the new code nor the ATE insurers seek to influence what form of retainer is agreed between solicitor and client, some solicitors have been reluctant to provide information about ATE insurance in anticipation that the process of applying for insurance will itself lead to greater pressure from the client for the solicitor to share the risk in order to satisfy the insurer that case is sound. In the end, whether the process leads to questions about the firm’s willingness to share risk or not, the obligations to discuss CFAs and ATE remain. With an element of own fees cover, the solicitor can consider the option of deferring some fees with the certainty of knowing they will ultimately be paid even if the case is lost.
With regard to disbursements, where deferring payment despite insurance is not an option, solicitors should now be actively considering interim disbursement funding. The availability of funding is dependent on the merits; the size of the claim, the enforcement risk and the timescales involved but in some cases availability of interim funding options are critical to an informed decision to proceed. The cost of such funding is not recoverable but in many cases the clients are willing to give up a proportion of the proceeds rather than risk discontinuance for lack of funding.
Soon there will also be an increasing time pressure on the solicitor to provide the necessary information to comply with the code. If and when the LAPSO Act is passed and there is a deadline for recoverability, every client with the prospect of obtaining insurance with a recoverable premium will need to become informed as a matter of urgency. This is because there is going to be limited time to make ATE insurance applications and limited underwriting resource to cope with the last minute surge. Clients who run out of time will look back at the Code and ask were they given enough information at an early enough stage?
The existence of ATE insurance will remain relevant even if after the MOJ’s reforms. One-Way Costs Shifting (OWCS) will not apply outside personal injury so a market should continue to exist as long as there is an adverse cost risk to insure in cases over a certain value. The products might change but the obligation to ensure the clients can make informed choices will not, so solicitors will need to keep themselves informed about the litigation risk transfer market and where it is heading in the future.