Commercial ATE insurers “should rethink merits test”

Pert: Risk-weighted average opinion of the merits

After-the-event (ATE) insurers should consider lowering the merits test if they want to attract more commercial work, senior litigators have suggested.

The comments came in a roundtable on commercial ATE published in a special report this week by Legal Futures.

David Pryce, managing partner of Fenchurch Law, said the pre-LASPO merits test was 50%.

“Since then, it’s been 60%. For the cases I do, if you got a 60% prospect of success, you don’t have 40% chance of losing – you’re going to win almost all of them and our clients know that. And so they don’t often take out ATE.

“Taking the merits test down to about 50% sounds like it’s only 10% more risky, but actually it’s much more than that and I think our clients would take out ATE much more.”

Georgina Squire, a partner and head of dispute resolution at Rosling King, agreed, although suggested setting it at 55% “so they know they’ve got the better of the argument”.

She added: “To get a barrister to put 60% in a written opinion, we need to have done all the work in advance. And then the client doesn’t want it anymore, because they can see they’ve got a fantastic case.

“These are the sorts of dynamics I’m finding I have to deal with day in, day out with clients. The 60% barrier is a real deterrent.”

Lucy Pert, a partner at Hausfeld who previously worked for Harbour Litigation Funding, said: “At Harbour, we didn’t say 60% – we said ‘we think it’s going to win’. It’s moving on now to a more sophisticated analysis of whether and when you think it’s going to settle too, leading to a risk-weighted average opinion of the merits rather than a binary 60%.”

Abdulali Jiwaji, a partner at Signature Litigation, pointed out that the merits assessment fluctuated throughout larger, more complex cases, and the risk appetite of clients varied.

“But the basic message for clients is that the longer you leave it, the more at risk you are of not being able to get cover at a later stage. When they’re counting up the numbers at the early stage, the deferred premium really helps.”

Ms Pert said it could be hard to get a deferred premium in large cases.

But Matthew Pascall, senior underwriting manager at Temple Legal Protection – which sponsored the report – said: “We are still able to insure on a deferred contingent premium basis. The suggestion that we lower our merit threshold to 55% is interesting.

“It’s about getting that balance right and it’s an ongoing exercise in the market, because you don’t want to lose business, but we need to ensure we are writing profitable business. We’re also quite conscious that one person’s 55% may be another person’s 60%.

“Ultimately, to ensure that we can continue to provide adequate and reliable cover, a more cautious approach, leaving the threshold at 60%, makes sense.”

You can read the special report here.

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