home » after the event » Defendant Outcome Hedging Insurance

Defendant Outcome Hedging Insurance

Outcome Hedging Insurance is typically used by Defendants and serves to reduce the liability attached to ongoing or potential litigation. The insurance can cover both damages and legal costs and can be arranged around a single large dispute, or a large volume of smaller claims.

A key feature of the insurance is the negotiation of the policyholder’s retained element of risk (known as ‘Excess’ or ‘Retention’). Essentially, in exchange for a premium (which unlike the premium applicable in respect of ATE insurance, is usually payable upfront) the insurer will cover any liability incurred over the Excess amount, up to an agreed limit of liability. Outcome Hedging Insurance therefore caps a policyholder’s liability at a certain level, rather than removing the liability entirely. Accordingly this specialist class of insurance can provide increased balance sheet certainty, particularly for blue chip companies that are required to notify shareholders of potential liabilities.

This insurance, which is highly bespoke through TheJudge, can also be applied in the context of mergers and acquisitions where pending or ongoing litigation would otherwise represent a barrier to the completion of the transaction. However, Outcome Hedging insurance can also be used in many different contexts, although it is predominantly of relevance to larger risks, i.e. where a defendant has the prospect of facing a large damages claim or litigation cost exposure. TheJudge is involved in some of the largest placements in this specialist area with indemnities exceeding $40m.

If you are a prospective defendant or lawyer representing a defendant and you would like to discuss whether Outcome Hedging Insurance might be appropriate to your specific circumstances then please contact .(JavaScript must be enabled to view this email address).

Q and A

How does the ATE Premium Work?

Although ATE premiums vary significantly, there are certain common features:

The premiums brokered through TheJudge are generally deferred and contingent upon success, meaning that the premium is only payable if and when the dispute is resolved in the client’s favour.
TheJudge is typically able to negotiate premiums which increase the closer the case gets to Trial or which are discounted significantly if the case settles early.
For litigation pursued in England and Wales, the ATE premium is a recoverable cost under s.29 Access to Justice Act 1999, subject to a test of reasonableness.

Is ATE only relevant to financially distressed litigants?

ATE is relevant to any party involved in or contemplating litigation. Whilst it can be used to level the playing fields between unevenly matched opponents, many of the world’s largest companies also regularly use ATE to hedge their legal cost exposure and bring increased certainty to the legal spend, especially at a time when legal budgets are under pressure.

Does the instructed solicitor need to act on a CFA in order to secure insurance for the client?

There is no requirement to act on a conditional/contingency fee basis.

What is the role of TheJudge?

As an independent broker, it is our role to work for the client in sourcing and negotiating suitable insurance. To do this, we identify and approach a number of potentially suitable markets. Our aim is to obtain several offers where possible, which is important to increase the chances of securing terms, whilst ensuring that any premium incurred is competitive.

For cases being litigated in England & Wales, our market search is vital to provide evidence of market comparables, should the reasonableness of the premium be challenged by the opponent at a costs assessment. We are market leaders in providing premium recoverability support and have had our evidence accepted at numerous costs assessments, including SCCO hearings.