David Pipkin, Non-Executive Director at Temple Legal Protection
By David Pipkin, non-executive director at Legal Futures Associate Temple Legal Protection [1]
For commercial disputes there is a perception that litigation insurance is only for claimants – and not for insuring defendants.
Here at Temple, whilst the vast majority of our insured are claimants we are only occasionally asked about insuring defendants. In this article we get under the skin of why that perception exists with commercial litigators.
It’s time to dispel the myth. Litigation insurance (also known as after-the-event or ATE insurance) works as well for defendants as it does for claimants. Each faces an adverse costs risk. Each wants to mitigate and off-set that risk to give them a freer hand in the conduct of the litigation. It is easy to think that the adverse costs risk only arises once proceedings are issued. The reality is that unsuccessful claimants and defendants both have to pay adverse costs that will include significant costs incurred by the successful party before any claim was issued.
Subject to its terms, litigation insurance meets all the adverse costs an unsuccessful party is liable to pay following a detailed assessment or as agreed, along with that party’s own disbursements. That cover is available for defendants as well as claimants. After all, many defendants are there because they didn’t issue first – for example when there are cross disputes. If a defendant can show a meritable defence and viable counterclaim why shouldn’t they have the benefit of the protection of litigation insurance?
How and when does a defendant pay for litigation insurance?
In common with all our litigation insurance, it is only payable in the event of a win. When insuring a defendant, our policy provides that the premium is only payable if the insured is successful and the policy further provides that they are only successful “Where the Legal Action is settled on terms substantially in favour of the Insured or the Insured obtains judgment substantially in its favour.” If a more closely defined term needs to be incorporated into the policy, just ask.
A successful defendant does not have a pot of damages out of which to pay the premium and that can make litigation insurance less attractive to defendants. Some see it as just another bill to pay at the end of an expensive and, at times, exhausting process. The key is to understand the saving an insured defendant makes by insuring their case and it’s easy to calculate: it’s
simply the difference between the premium the defendant has to pay (but only if they win) and the adverse costs they would have paid – had they lost uninsured.
Modern commercial clients understand the need to hedge, manage and mitigate risk and that’s exactly what litigation insurance does. Defendants often have less control than claimants – they have to roll with the punches. Litigation insurance gives them control over their adverse costs exposure. It also allows a sensible defendant to deploy its resources to fund the work you need to do for them to get the best outcome.
Temples underwriters have much experience of tailoring litigation insurance to the needs of the customer and are happy to discuss the options available and the insurance premiums that might be payable in any given circumstances.
We have recently insured a Defendant in a high profile defamation case and if your defendant client has a meritable defence get in touch with us to see if we can help.
To find out more about our flexible approach for defendant cases, please contact our please contact our commercial underwriting team by phone on 01483 577877 or by email to matthew.pascall@temple-legal.co.uk [2]