Litigation Insurance Time Bombs Diffused is about watching out for some of the potentially overlooked dangers that might be lurking around in After The Event (“ATE“) insurance policies.
Such policies are about risk management and they usually have some FCA protection provided, particularly for consumers. An ATE insurance provider has to treat customers fairly.
However, if you litigate regularly it is conceivably just a matter of time before something can happen and that ticking time bomb could go off leaving a right mess.
The problem arises because when you go to Court there are two aspects, costs and damages. Imagine the following scenario: you obtain an order for damages but if the costs are very substantial and if by some misfortune you do not succeed in getting a satisfactory award of costs, you could find yourself with a most unpleasant situation on a net overall basis. In fact, it might get worse. You might find yourself with a small award of damages, yet not only having to pay costs that dwarf your damages but the straw that might really break the camel’s back could be having to pay the insurance premium on top! How on earth could this be a success I hear you say!
Definition of Success
There appear to be few instances in life when you can ‘win’ but still comprehensively lose at the same time. After all, if you win the lottery you do not expect that it comes along with a liability that exceeds the winnings!
ATE insurance can be a minefield and even the shrewdest operators can come a bit unstuck.
Imagine having a building insurance policy to cover you for fire and the building burnt to the ground (and you still have the ashes to prove it!) but the structure of the policy was such that the insurer said that there was no fire and legitimately avoided the policy! Whilst not as extreme, the definition of ‘success’ needs to be very closely looked into if you do not want those sort of surprises to sprout.
The issue is not the ‘success’ using the ordinary meaning of that word but what a policy clause defines as the circumstances in which you could be deemed successful in litigation. Ignore the word success and focus on the conditions you have to satisfy to ensure you have sufficient cover.
Multiple Defendants And Litigation Insurance Time Bombs Diffused
What happens if you win against one defendant but lose against the other one? That is one litigation insurance time bomb just waiting to potentially blast off.
The problem is if the ATE policy does not set the conditions for ‘success’ on a net overall basis, taking into account both damages and costs, then you may want to consider carefully if this is the policy for you.
If you are happy with that sort of a risk fair enough but make sure you are aware of what risks do indeed still exist. You can win a case on the damages but still get hit for costs. It does happen.
Multiple Heads of Claim And Litigation Insurance Time Bombs Diffused
In a similar way you could have a claim involving a whole range of heads, win on some of them and lose on others, leaving you in a right pickle.
Imagine further that you had issued a claim on ten heads and you lost on all of them except for one; surely you are covered? No not necessarily. If you won on the biggest one but lost on the rest, your ATE policy might determine you had been successful.
Exclusions
Never treat any insurance policy as a blanket indemnity. Almost all insurance policies have exclusions. Make sure you have read and familiarised yourself with them so that you are fully aware of them.
Litigation Insurance Time Bombs Diffused For You
So litigation insurance time bombs diffused involves what exactly? The answer is to read your insurance policy and set out the scenarios for which you do not have cover. Then ask yourself the question – can you live with that situation. If not, perhaps do not take out the policy.
Not very helpful I hear you say! Well here is the bit that really counts. If you do not ask you do not get! Your next port of call is having done your ATE Assessment, is to see if you can change your policy terms to fit the facts relevant to you so that you have the cover you want.
Our CEO, Elliot Green has taken out literally dozens and dozens of ATE policies over the years in insolvency litigation cases. He regularly approaches insurers for endorsements to revise, redefine and if necessary reformulate policy terms so that they are clear and deal with the risks he reasonably requires cover for. He has even succeeded in having policy terms amended long after issuing proceedings.
If you want advice on how to deal with your ATE policy issues Contact Us.
Disclaimer: Litigation Insurance Time Bombs Diffused is not legal advice and not to be relied upon. No liability is accepted for any such reliance.
