Over the past decade, after the event (‘ATE’) underwriters have begun to better understand the dynamic between the quality of the case and the quality of the legal representation. It has always been true in theory that a comparatively poor case on the merits can result in a good outcome for underwriters, if the case can be settled on good terms by a skilled lawyer. Equally, in theory, it has always been understood by insurers that it is easy for an otherwise good case to be lost by a lawyer operating out of his/her depth.
Now, a decade on, underwriters have the stories (more often the scars) to confirm both theories are correct in practice. Reputable underwriters have largely avoided betting on bad cases in the hope they can be settled (any other approach would be a very risky business), but certainly every insurer will have seen “a good case go bad” as a result of the legal advice received or tactical decisions made.
It is therefore accepted that the quality of the representation (however that may be measured) is an important component to an underwriter’s overall risk assessment and it is a component that the market’s young history has shown does indeed matter. As underwriters place more emphasis on the quality of the legal team, solicitors should respond by placing greater emphasis on knowing their qualities and plan ahead how to present their credentials to insurers when required.
As ever when seeking insurance or funding from third parties, presentation is key. Knowing your own strengths and weaknesses is an important part of getting the best deal for your client, particularly for any solicitor who needs to interact regularly with After-the-Event insurance. Whether they are frequently looking for one-off policies or whether they operate their own delegated authority arrangement, an individual litigation solicitor or a department will need, from time to time, to persuade underwriters that they have expertise in the relevant field.
An individual or a firm can either take an unconscious, haphazard approach to this process or they can opt for a more sophisticated strategy if they are willing to invest some time and energy in the process. The rewards of making such an investment are reflected in the quality and frequency of insurance offers for their clients.
BUILDING A BASIC UNDERSTANDING
A solicitor who does not know some basic information about the historical performance of themselves, their team or their dispute resolution department as a whole, will struggle to persuade a third party, like an insurer, to risk their money in support of a case.
I would suggest that the following information would be classed as “basic” for the purposes of persuading insurers that their track record speaks for itself:
How many times has a client with a similar case been represented by the firm?
How many cases have proceeded to a full substantive trial? What proportion resulted in achieving the relief sought to the extent that both the solicitor and client would consider the outcome a success? (i.e. imagine how success might have been drafted in a CFA)
How many cases have settled on favourable terms without the need for a full trial?
How many cases have been run under a conditional fee arrangement? What proportion was successful? What level of success fee was recovered from the opponent?
How many ATE insurance contracts were incepted? How much premium has been collected by underwriters on cases the firm has insured? How much money have the underwriters paid in claims in respect of unsuccessful cases?
If this basic knowledge shows a good historical track record then there is no harm in highlighting this as early as possible. The underwriters can then consider the risk in question with the comfort of knowing that he/she has the right to assume the case is in safe hands. If the statistics are not persuasive on their own, then more context may need to be considered. What lessons have been learned about past failures which can be applied to the case at hand? Where things have gone wrong, how has the firm mitigated those losses?
To go beyond the norm and actually impress an insurer, a solicitor would have this information at their fingertips when questioned. I frequently witness underwriters in meetings and during conference calls asking the solicitor how many cases of the relevant type the firm has run previously and with what success. More often than not, the answer is anecdotal when it would be so much more reassuring to hear some statistics roll off the tongue. It could make all the difference as underwriters can cover their own backs by quoting statistics in their underwriting assessment, giving them more confidence to support the risk. General platitudes tend not to be so effective when a divisional underwriting director wants to know “why on Earth” they are now paying out a substantial claim.
To add some context to the “basic” statistics or to maximise the good impression sought, a solicitor might consider compiling the following additional information:
In unsuccessful cases, on how many occasions were adverse costs orders avoided or mitigated (i.e. drop hands settlements agreed)
What damages were awarded or what other relief was ordered in those successful cases?
How long is the average case length for that specialist area of ligation?
What is the win ratio on interim hearings?
Underwriters would be particularly keen to hear more about a firm’s experience with costs information. Cost budgeting is an area that receives a great deal more emphasis in the market now than it did a decade ago (much like the quality of the representation). This is because there have been so many examples of cases with seemingly modest cost estimates that have resulted in massive costs overrun. If a solicitor can provide some statistics on the average costs incurred in cases they have run, it will provide insurers with reassurance that the risk will be contained within anticipated levels. It has to be accepted that most lawyers will have much better records regarding own costs incurred than adverse costs, but that is understandable.
If a firm could answer the questions below, it could not fail but impress underwriters:
What is the average costs budget for a case of the type in question?
On how many occasions has the firm’s original costs budget been exceeded? By what sort of %?
Other more sophisticated approaches to record keeping could include:
The success record of barristers that have been retained by the firm, at least in respect of the instructions they have directly passed to counsel.
The success record of the firm’s CFA portfolio cross-referenced by supervising Partner or by CFA committee.
The above information goes beyond merely providing a track record but seeks to explain, with statistics, how that track record has been established. The quality of the review processes by counsel or by established committee, if supported by statistical analysis, will demonstrate the effectiveness of the process and the robustness of any future projections.
A word on confidentiality
It is understandable that some firms are not willing to provide too many details about their track record to third parties through fear that the information may enter the public domain or fall into the hands of competitors. Where the underwriter has asked for the information or where the solicitor feels that providing the same confidentially could be critical, it is very likely that an insurer would agree to enter into a formal NDA.
Block-rated schemes
The truth is, outside of high volume areas like personal injury, firms do not tend to keep very sophisticated records about their own litigation performance. In commercial litigation, for example, the cases are not homogenous and few firms use the sort of technology that would prompt the fee earners to capture basic statistical data of the sort referred to above.
Certainly, CFA dominant practices have needed to keep good records on their performance and the quality of their risk assessment in order to stay in business. Such data capture would certainly not be seen as a luxury for a firm who must predict its win ratio and success fee income to ensure that cash flow will be sufficient to meet the overheads.
Volume firms have benefited from the availability of this data for the purposes of negotiating competitive delegated authority facilities with insurers. Indeed, many scheme negotiations have floundered simply on the basis that the firm did not possess sufficient track record data. The more accurate and more thorough the data, the easier it is for firms to understand (and on occasion question) the actuarial process behind a block-rated scheme.
I am aware of one client who keeps such meticulous data on the performance of their ATE scheme account that his information is comparable, if not better, than the data held by the insurer. Indeed, this was apparent during some rather embarrassing discussions with the insurer who was proposing an increase in the scheme premium rates. The insurer’s arguments about the profitability of the scheme shrivelled up in front of compelling statistical evidence that the scheme was already highly profitable with a low loss ratio. A great example of how a firm’s client (and indeed the defendants) benefitted from a claimant firm keen to be aware of their own strengths and weaknesses for scheme negotiation purposes, through a robust approach to record keeping.
With CFAs on the increase in commercial litigation, itself leading to greater interaction with ATE and Third Party Funding, there is more financial incentive than ever for firms to start capturing information on commercial litigation. With Rule 2 and the apparent rise of litigation risk transfer branded packages, all firms should take a look at what they know about themselves and (to quote Donald Rumsfeld for the first and last time) indentify the “known unknowns” before anybody asks questions which cannot be answered.
Matthew Amey is a director of risk transfer broker TheJudge (http://www.thejudge.co.uk)