It is said that the special forces feel the loss of one of their number even more keenly than the regulars. Selected for skills found nowhere else, there are not that many of them. All know each other and share experiences, triumphs, setbacks and hardships. A demise is like losing a family member.
On several levels this might be striking chords right now in the small world of After the Event insurance (“ATE”), as on 5 July Gibraltar-based Elite Insurance Company Ltd closed its doors to new business and is now in run-off. It is organised retreat, not surrender or rout. The rugby dreadnoughts grouped on Elite’s website will complete their underwriting fixture list, but they will see no new matches. There is now one less ATE provider.
In commerce, the passing of a competitor is usually seen as an advantage, with the other players simply moving in and fighting for the uncovered – and any additional – business. That will probably happen here, too, but not without much rueful reflection on the state of the market, the factors that might have been in play, and how to avoid them.
Most people still have only a hazy idea about ATE. To many it is something unique to the call-list of slip-and-trip personal injury lawyers, an ancillary of ambulance-chasing speculators and clients lured by adverts offering the manna of risk-free recovery. In some places there persists unworthy superstition that ATE is part of the alchemy and sorcery of a litigation underclass, rubbing along ill-lit corridors with Conditional Fee Agreements, pro bono publico and what remains of Legal Aid: there is something indefinably reprehensible about it.
Few things could be further from the truth. ATE is nothing more – and nothing less – than a highly specialised insurance product that covers a key potential liability in litigation. The underwriter assesses the strength of the legal case, takes a view and quotes a premium for paying the other side’s costs if the insured loses. There are many types of legal expenses policy – some routinely offered as an add-on to others, such as with home and motor insurance – but ATE differs in providing cover not in circumstances that might arise but for those that already have. It is all in the name. The insured obtains cover not to enable him to decide whether to take advantage of a mistake or misfortune, but as protection should liability for costs fall upon him. The claim situation has arrived. In some cases a decisive hearing may already have started.
Litigation funding is similar. The funder examines the case, applies criteria and decides whether to commit cash, on terms, to enable a claimant to progress a claim for which lawyer and perhaps other expert help is beyond his available funds. The funder also assesses the merits and takes a risk. He is rewarded if the claimant is the victor, but forfeits his stake otherwise. Plainly there could be no meaningful recourse in the event of defeat. Just as with ATE, the funder can be called on after battle has commenced.
But there is, literally, another side to the coin. A losing claimant who does not himself underwrite the running of the case might be thought indifferent to an adverse costs order, happily reckoning that the successful defendant could not enforce. However, litigation funding is not confined to those lacking means. It is regularly engaged by individuals and also companies who for valid business reasons do not wish to commit their own capital, or have short-term cash-flow issues but substantial net assets that could be attached on enforcement. Regardless of that, resulting insolvency or bankruptcy could have serious commercial and reputational consequences. It is wrong to prejudge funded litigants as unconcerned about losing. As regards opposing costs they might in all senses carry the same risks as any, and have identical need of protective cover.
Elite is no longer writing that, and litigant clients, their lawyers and funders have commensurately less scope for insuring contingent cost liability. Savings plans continue after the run on Northern Rock, accountancy has stepped around the wreckage of Arthur Andersen and retailing has survived the closure of Woolworths and BHS, but of course these are commonplace activities, with many providers in a market as mature as it is broad. By contrast, ATE is as new as its providers are few, and it is hoped that this latest turmoil heralds opportunity rather than downturn. In some markets, litigation probably needs – and may soon have – fewer players, but the wider business of supporting dispute resolution needs more to get involved.
Sword and shield
Just as litigation funding can energise a claim that might otherwise remain dormant for want of means, so ATE is an amulet against adverse cost liability if a case is lost. One facilitates and the other protects. Their nature, terms, objectives and origins are different. They are not dovetailing products and are frequently engaged singly. They are however complementary, with a mutually compounding effect similar to doubling rooks in chess. Whether they are symbiotic is a debate for the purists, but there is no doubt that their whole outweighs the sum of their parts.