Insuring costs in litigation

Litigation is expensive on your own side and there is a prospect of losing a case and having to pay an unknown amount of money to the other side. This is almost always a great worry for clients - however good we or they consider their case to be, or indeed however well off they are. As the Court of Appeal recognised in Garner, most people simply cannot contemplate the types of costs potentially involved.

Fortunately this need not necessarily deter people from pursuing cases. As described in the page setting out general information about legal costs, in legal aid cases costs are not a problem. Your own costs are mostly paid, although the Legal Aid Agency usually expects a contribution to the costs if a group of people will benefit from bringing the case. This contribution can be significant (eg £3,000-8,000) but it is still a sizeable discount on the actual cost, even when we are working at reduced legal aid rates. As for the other side's costs, although an order is often made against you, there are special rules about it being enforced against you. In any event, legally aided clients qualify for it precisely because they could not afford to pay their own costs, let alone costs of other parties.

"Before the Event" Insurance

In other, "privately funded", cases, you may be able to litigate using legal expenses insurance that forms part of, for example, your household policy. It is always worth seeing whether you have such cover. This "before the event" (BTE) insurance is particularly useful with environmental nuisance and similar claims. However such policies do not usually cover judicial review and similar cases. For those you have to consider other arrangements (see the general information page) for example conditional fee arrangements (CFAs) and protective costs orders (PCOs).

In BTE cases insurers will usually want to refer the matter to a "panel" solicitor with whom they have business arrangements. However this can often be avoided by discussion with the insurers, particularly in situations that are likely to come to court, because in such cases people have an automatic right to use the solicitor of their choice.

BTE insurance is also subject to a certain limit of cover, which can quite easily be used up in a case, when budgeting both for own side and opponents' costs. However, it usually provides a significant amount of cover in order to allow you to get on with your claim.

"After the Event" Insurance

One therefore needs to consider so-called "after the event" (ATE) insurance. This is available from specialist insurers to cover exposure to opponents' costs, as well as own-side disbursements and sometimes even your own solicitors' costs. Insurers like solicitors and barristers to work on a CFA basis because it gives them confidence that they think the case is a good one, as the lawyers would not otherwise take the risk of losing and not recovering their costs.

Because the risk has already happened ie. a case has arisen, from an insurer's point of view the risks in ATE cases are much higher than in BTE cases. Therefore the premiums are potentially very expensive. From April 2013, due to changes in the rules on costs in civil litigation, the premium for ATE insurance is no longer recoverable from opponents in the event of a win.  This makes obtaining ATE insurance expensive as the insurer will require the premium to be paid by the insured.  As with BTE, ATE insurance is not usually available in judicial review and similar public law claims. It is unlikely therefore in most cases that ATE insurance will be available or affordable.

We have been pressing through the courts the point that PCOs should be granted in private environmental claims such as nuisance. We are hopeful that we will succeed and an important aspect of environmental protection will finally be in place.

If no protection from adverse costs is available through legal aid, a PCO or insurance, you can still litigate, but need to be fully cognisant of the financial risks and downside of losing.