You would be forgiven for thinking, not least because of the increased availability and maturity of the ATE insurance market, that there are less flashpoints these days between solicitors and insurers when applying for cover.
In general this is probably true, albeit not one likes to have a case rejected. There will always be cases where solicitors feel let down by the market; where the market feels the merits are too finely balanced and the case is assessed as a very high risk. However there are some issues that upset insurers. . Everyone accepts technical mistakes arise but of particular concern are behavioural errors and I’ve identified four below to discuss in more detail.
VERY LATE APPLICATIONS
The ATE industry is seeing an increase in new applications where a Trial date has been set, and inevitably this has an adverse effect on the Underwriters’ views of the case. Firstly, it’s difficult not to ask the question “why haven’t the benefits of ATE been discussed before now?” and indeed there are some insurers out there who will entirely refuse to consider cases where the Trial is due to take place within the next 3 months.
The very existence of a Trial date indicates to insurers that there is no likelihood of settlement and therefore that the prospects of the case are perhaps not as strong as envisaged, especially if the reason for proceeding to Trial is that the opponent is fiercely contesting the applicant’s side of the story and has legal representatives who are confident of their case.
One reason for late applications is the extra cost of ATE when global offers are expected. Of course, an ATE premium needs to be factored into any global settlement situation and some solicitors will delay an application for insurance until they are sure the case will go to Court.
But the risk of the case not settling due to the additional cost of a premium is insignificant when compared with the potential alternative. What if you don’t advise your client about ATE insurance until the eleventh hour so that only a handful of markets will agree to look at the case? What if none of this slimmed down shortlist of insurers are interested in offering terms? What if this leaves the client vulnerable to a hefty adverse costs order, all because ATE wasn’t explored a few months before? Even if a policy is available it may be for a comparatively expensive premium which is open to challenge at Detailed Assessment.
Unfortunately cases like this are real and we have seen a case in the past where a law firm has been pursued for professional negligence in relation to inadequate advice following the delay in applying for ATE insurance.
DISCLOSING QUOTES WITHOUT CONSENT
Another common and potentially disastrous error is to disclose the terms offered by an insurer to the opponent. At its worst, this is an action taken before accepting the quotation. This is done usually without the consent or knowledge of the insurer, in an attempt to settle without incurring the cost of the ATE premium.
While this is, of course, somewhat underhand, I have to say I can understand the initial logic, albeit that it will almost certainly have ruinous consequences. Insurers will often withdraw the quotation immediately following such disclosure and may even decline any future cases on the basis of this one seemingly innocent mistake. Being in the centre of such discussions on a regular basis, I have seen many leading insurers decline to consider cases, as Underwriters are understandably reluctant to commit themselves, based on that firm’s history of using quotations to settle the case without incepting a policy.
On rare occasions some insurers may be open to negotiating a “booking fee” or “admin fee” should it be the solicitor’s intention to expressly disclose the terms of the offer with the insurer’s consent to give the opponent one last chance to settle. The applicant solicitor may harbour the perception that it may help recoverability although most underwriters are not persuaded by this as they regularly recover premiums without disclosing the terms.
If there is a good relationship with a firm or broker, an underwriter may agree to this once or twice in order to facilitate an early settlement where deep down they think the case seems destined to proceed without cover anyway, but it would be dangerous for insurers to accommodate such requests with regularity. To do so would fundamentally undermine their business models and lead to adverse selection by consent for insufficient return. Sometimes though, a booking fee is better than nothing.
ENDLESS DEADLINE EXTENSIONS
A common gripe for ATE professionals is the false (or at least dangerous) assumption that it is easy to obtain an extension of the expiry deadline insurers give on a quotation. The reason for this assumption is largely historical. Provided there have been no “material developments” within the case, insurers used to grant extensions months after having originally read the papers but insurers are tightening up on this. Too many cases settle during the extension period. The risk of assuming an extension will be granted and it not being so is not worth taking without a very good reason.
To illustrate the point, I’ve recently been dealing with a case where quotations were provided almost immediately after the papers were submitted to the market. The case was evidently a good one. For whatever innocent reason the firm asked for an extension and the insurers obliged. The extensions expired again and again. Expert reports arrived, pleadings were sent in, all of which were promptly passed on to the insurer. The insurer seemed content to continue to extend the quotes despite the fact that the litigation was taking place under their noses.
Eventually, the client decided ultimately that they would like to proceed to accept one of the offers after reasonable pressure from us. When we re-approached the insurer with the acceptance, they not only withdrew the original terms, they refused to offer terms at all citing the delay and the developments which had occurred since the original quote. This was despite the fact that they were fully apprised of all of the developments that had occurred and they hadn’t made a sound about them.
The question is should the onus be on the insurer to provide a strict deadline and stick to it? Or should the onus be on the client to take the deadlines more seriously rather than expecting an indefinite amount of extensions? In the end, after a considerable amount of arm twisting on my part, another insurer offered reasonable terms albeit they expressed their reluctance. Everyone was in a panic for a while in a situation which should have been straightforward and concluded months ago. What if the premium from the second insurer had been far higher and difficult to justify at Detailed Assessment?
When we are asked to provide recoverability support, which we often are, it is so difficult to explain why the most suitable offer on the table wasn’t accepted in time and subsequently, why a less suitable (and more expensive) option had to be utilised.
PUSHING AN INSURER TOO FAR
As a broker, it is my job to help negotiate a good deal for the client and admittedly this can mean many different things in the context of different cases. The more attractive the risk posed the more negotiating strength the applicant has. However, underwriters, as one might expect, are reluctant to repeatedly approach their line management to alter their standard terms and conditions or reduce the premium for the same case or the same fee earner. There is a time and hassle factor in everything and as a broker we are used to knowing when and how you can ask for quotations to be amended. Sometimes the terms offered are the terms and that is that.
The worst situation is where a quotation is offered after months of wrangling over specific terms and after the insurer has accommodated the requests, the offer expires without acceptance. The offer is then extended by the insurer given all the hard work that everyone has put in. Understandably, it is difficult for underwriters to accept they are not going to see a return on something that has taken up so much underwriting time.
Then, before the quote is accepted a Part 36 offer is received from the opponent. This changes the landscape of the litigation and the receipt of the offer prompts the applicant to ask for a lower premium because of their perception that there is a lower risk to the insurer. In truth the risk to the insurer may not significantly change as the policies nearly always cover the risk of failing to beat offers. This situation can lead to relationships breaking down even if the policy is ultimately accepted with a lower premium.
Solicitors’ firms have a difficult balance between trying to get exactly what they want for their current client without jeopardising the potential for future clients to get cover from industry leaders.
Trying to settle the case before incurring the additional liability of the insurance premium by disclosing the quotation terms or perpetually asking for extensions can and has caused insurers to lose all patience with particular repeat offenders. I’ve seen insurers turn down perfectly good cases purely because the fee earner was considered to have wasted the insurer’s time on a previous case or two and the underwriter suspects the same again.
It is the client that loses out ultimately so firms and fee earners need to avoid being black balled by leading participants in the market. There are plenty of ways the market could improve to help solicitors but there are just a few things that solicitors could do to help the ATE market.
Helen Smith is a broker at ATE brokerage TheJudge Limited (http://www.thejudge.co.uk)