A High Court judge has cleared the way for after the event insurance to be offered to plaintiffs to protect them from exposure to legal costs when making a personal injury claim.
After the event insurance (often abbreviated to “ATE insurance”) is a policy taken out when plaintiffs make a personal injury claim, to protect them from the legal costs of the defendant should the claim be unsuccessful. No premium is charged until the result of the case is established, and only if the plaintiff is successful is the premium paid at all -when it is usually deducted from an award of compensation.
Recently the provision of after the event insurance was challenged in court, when the defendant claimed that it was unlawful due to being contrary to the “law of champerty”.
The law of champerty makes it illegal for a third party to provide financial support to either party in a court case when the third party has no direct or legitimate interest, or to provide financial support in return for a share of any resulting compensation settlement.
It was argued that, by providing insurance against potential legal costs – and by deducting the insurance premium from a compensation settlement – insurance companies and solicitors offering after the event insurance were acting unlawfully.
Judge Hogan reviewed how after the event insurance works, and found that the provision of insurance did not contravene laws relating to “trafficking in litigation” (where the third party´s only motive in supporting the litigation was to derive profit), and that it serves an important purpose by allowing access to justice to persons who might otherwise be denied that justice.
The significance of Judge Hogan´s decision is that it clears away the grey area of whether after the event insurance is lawful when taken out to protect a claimant from exposure to legal costs, and also that solicitors who fail to offer claimants the option of ATE insurance could subsequently be sued for malpractice if adverse orders for costs are made against uninsured plaintiffs.