Market Capacity Update: adverse costs insurance – are deferred and contingent premiums still available?
One query we are often asked prior to an application being made, is whether it’s still possible to secure deferred and contingent premiums. The short answer is YES.
A deferred and contingent premium means the insurer is only paid its premium if the case is successful. If the case loses, the insurer doesn’t receive a premium and is liable to pay the adverse costs. Its appeal is therefore obvious.
However, in recent years, a number of insurers have adjusted their models to require some of the premium to be paid upfront, but this is certainly not true of all insurers.
There can certainly be advantages and disadvantages to each model. Indeed, the cash position for some clients may dictate the need for a fully contingent premium, for instance, where there is no means to finance an upfront premium and the economics of the case do not allow for a litigation funder’s involvement (e.g. to fund the premium on the client’s behalf). Deferred and contingent premiums can be a lifeline for financially distressed claimants.
Despite the availability of deferred and contingent premiums, some clients will still elect to pay a partial upfront / part deferred premium. Why? Because where the insurer receives part of their premium upfront, they are usually able to discount the contingent element of their premium. Therefore, it certainly pays to consider both options unless the client has no choice but to seek a fully contingent premium.
Some key tips for securing competitive adverse costs cover in today’s market:
- If you have a case that requires adverse costs cover of anywhere between £100,000 to c.£14m then it ought to still be possible to obtain fully deferred/contingent premium options, and you should advise your clients as such.
- Higher limits than c.£14m will likely result in the inclusion of insurers who will require at least some element of the premium payable upfront.
- Coverage terms can vary widely. It is important to understand the difference and nuances between wordings and how the policy responds in different circumstances. At TheJudge, we have previously refused to accept a number of insurers’ standard policy wordings as we felt that they have had deficiencies in a number of areas.
- Avoid making an application to just one insurer! Statistically, we know that if you make just one application and that insurer rejects the case, the chances of securing alternative terms elsewhere diminish greatly. In fact, the same applies with applications for litigation finance. However, we also know that statistically insurers (or funders) do not always reject the same cases: it is therefore important to approach a reasonable number of insurers, not only to get the most competitive terms, but also to safeguard the client’s position.
- Don’t confuse adverse costs with own-side’s fee insurance (aka Attorney Fee Insurance in the US). In addition to advising clients on the availability of adverse costs insurance, you should also advise on the possibility of insuring the legal fees they pay you. With own-side’s fee insurance, the client is basically obtaining capital protection for the fees and expenses they pay in pursuing the case. If the case loses, the insurer reimburses the client for the legal fees they’ve incurred. This could very well be a separate insurer to the insurer who has insured the client’s adverse costs. Although these are very distinct products, they are equally important, and should be discussed with all clients, whether financially distressed or corporate clients in funds.
If you have a case requiring adverse costs insurance, own-side’s fee insurance through to litigation finance, please contact one of our brokers as set out below: