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The Litigation Risk Transfer Market ..The Lord Justice Jackson effect James Delaney

The Litigation Risk Transfer Market ..The Lord Justice Jackson effect James Delaney www.thejudge.co.uk. BTE Legal Expenses Insurance. Pre-paid (traditional) insurance to cover legal expenses in the event that a dispute occurs (i.e. not applicable for existing disputes).

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The Litigation Risk Transfer Market ..The Lord Justice Jackson effect James Delaney

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  1. The Litigation Risk Transfer Market ..The Lord Justice Jackson effect James Delaney www.thejudge.co.uk

  2. BTE Legal Expenses Insurance • Pre-paid (traditional) insurance to cover legal expenses in the event that a dispute occurs (i.e. not applicable for existing disputes). • Sold as an add-on to household/motor • Jackson recommends greater take-up – Is it realistic? • Limited cover/indemnity e.g. pi, clinical negligence, employment • Commercial BTE - take up is nominal. • Access to Justice – Different mindset of BTE v ATE underwriters.

  3. ATE Insurance • Provides an indemnity for costs if the case is lost. • Potentially insures: i) Adverse costs ii) Own side disbursements iii) Own side lawyers fees. • Wide spread application in civil litigation i.e. personal injury/ clinical negligence. Increasing application in SME & large business disputes. • In England & Wales the premium is currently a recoverable cost (Access to Justice Act 1999). • The premium is typically deferred and contingent upon success i.e. only payable if the case is won + heavily discounted for early settlement.

  4. ATE – Jackson Implications • Concerned premiums too high and used tactically to the detriment of paying parties. • Recommending removal of recoverable additional liabilities i.e. success fees/ATE premium. • One way cost shifting in personal injury + some other areas. • Eradicate need for adverse cost insurance.

  5. ATE Personal Injury Market Implications? • Reduced ATE PI market. • Disbursements only ATE insurance. • Large question mark over the appetite of insurers to support a limited “disbursement” market. [ Mixed market opinion ] • Premium for any disbursement only cover paid from client’s damages – Risk of adverse selection against insurers.

  6. Commercial/Non PI ATE Insurance • Eradicating recoverability of premiums will prohibit clients’ ability to insure and thereby pursue their cases - Why? • Small business disputes – Proportionality Issues • The Asia experience - Cost v Damages Ratio (good cases uninsurable) • Cases with non monetary remedies won’t be insurable e.g. IP infringement proceedings etc… • David v Goliath - Goliath can force a settlement at undervalue

  7. Jackson ATE Impact Big Ticket Cases • Concerned that big business can utilise a system intended for impecunious clients. Is the concern misguided? • Greater propensity for global settlements inclusive of costs. • Keeping recoverability for some but not others requires - means testing but how? Would commercial ATE survive without premium recoverability? • Yes but with a more restrictive qualifying pool of insurable cases + increased adverse selection risk.

  8. Third Party Funding What is it? • Professional Funder with no prior interest in case • Provides cash flow for legal costs • Share of proceeds Cost to the client • 20-40% of damages? • 200-400% min return on investment? • Typically works best in large disputes with a large damages v cost ratio.

  9. Third Party Funding – Jackson Implications • Generally a thumbs up endorsement by Lord Justice Jackson. • Removal of Arkin cap could prohibit funders. • Funders are unlikely to be interested in bridging any gap for small business disputes left by eradication of recoverability. • Funders in UK need buoyant ATE market to mitigate their adverse cost exposure. • Restricting ATE market growth could inhibit the growth of the funding market.

  10. Litigation Buyout Insurance (AKA Outcome Hedging / Stop Loss Policy) What is it? • Defendant client facing actual or possible litigation • Policy providing hedge on risk by capping potential liability at a certain level • Insured’s retained element of risk (retention/excess) Jackson implications? None.

  11. The Future of the Market? • Hedging legal costs is here to stay both in the UK and internationally. • Individuals, SMEs and large blue chip clients – Continual education/promotion of “hedging risk” by lawyers/funders/insurers • Huge international growth ahead with litigation insurance being applied in Asia, Australia, Canada, Europe and US. • Insuring attorney fees in the States provides an economic alternative to contingency fees. • Continued growth of litigation funding – albeit restrictive market in comparison to the size of the litigation insurance market.

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