As fee earners, the ability to offer clients the right options to manage the costs and risks of litigation is important. Over the last ten years the introduction of new retainer models, the growth of non-recourse third-party litigation funding, and the developments in after-the-event (ATE) legal expenses insurance, mean that those options are more varied than ever.

Given the present financial climate, clients are more and more aware of, and interested in, risk management tools and ways to reduce the cost burden of dispute resolution. Being able to provide clients, and prospective clients, with options not only allows clients to pursue cases in the most cost-effective fashion, it also allows cases to proceed (and proceed further) that might otherwise have had to be dropped (or never begun) without funding and/or insurance support.

Annecto Legal was established in the run-up to the ‘Jackson Reforms’ of 2013 to provide solicitors, insolvency practitioners and business clients with support to understand the full range of choices around retainers, funding and insurance. By acting as a broker, Annecto is not tied to any particular product and can provide invaluable support in understanding how best to structure the risk management of a claim.

By understanding a client’s appetite for risk and their cash position, as well as the legal team’s willingness to ‘put skin in the game’, Annecto can give insight into the range of options available, what they might cost, and how they could impact on settlement (and, ultimately, what the client will get net at the end of the process).

Such options could include funding backed by insurance, to reduce the cost to the client, or a discounted conditional fee agreement (discounted or hybrid CFA) alongside insurance and funding. There are also options to utilise a damages-based agreement (DBA) with funding support, to align the interests of client and legal team, whilst also providing cash flow for the solicitor practice.

Insurance can be an effective tool to de-risk adverse costs, provide a cost-effective solution to Security for Costs and indeed to reduce the risk (and therefore the cost) of funding a legal budget. Insurance products can also provide cross-undertakings for damages, or give a practice protection for contingent work in progress (WIP). There are an abundance of ways that retainers, funding and insurance can be used to help protect clients and their legal team from risk or cash-flow issues.

Many of the ways that funding are insurance can be used are akin to a joint-venture (JV) arrangement whereby you have a project (typically a dispute to go through the courts) that could create value if successful (by way of an award of damages, for example) but has costs and risks associated with pursuing it. By shifting the risk to third parties – whether insurers or funders, or both – the client can pursue the project and would typically share in any ‘profits’ upon a successful outcome. If the project fails (the case loses) then the client has avoided costs and the JV partners would bear that loss.

Legal funding and insurance options

After the Event Insurance (ATE Insurance) – ATE insurance is a form of legal expenses insurance. It can be likened to a “swap” arrangement, where the insurer assumes the risk of potential adverse cost awards in exchange for either a nominal upfront fee or no fee at all. This transfer of responsibility means that if the client loses, they are no longer obligated to pay the defendants. Instead, they would pay the insurer in case of a win.

This arrangement is attractive because after a successful outcome, the client is typically in a better financial position than they would be in a loss. Furthermore, the payment to the insurer would only be a percentage of the adverse costs, not the entire amount.

Third-Party Funding Agreements (TPF): Third-party funding involves an external litigation funder, unrelated to the dispute, agreeing to finance some or all of the legal costs in return for a share of the awarded damages if the case is successful. TPF can be combined with various funding options, such as ATE insurance, conditional fee agreements, and damages-based agreements.

By utilising TPF, you can completely eliminate financial risks as the funder covers all expenses and, in return, receives a share of the awarded damages. If the case fails, the funder bears all the costs, and you are not required to make any payments.

The benefit of third-party litigation funding options is that they shift the risk from your balance sheet, freeing up your cash flow. In return for assuming the risk, third party funders usually seek around one-fifth to one-third of any damages recovered. This arrangement allows you to retain a significant portion of the reward (up to 80%) while taking on none of the risk.

Conditional fee agreement – Conditional fee agreements (CFA), commonly referred to as ‘no win, no fee agreements,’ are a funding arrangement that enables individuals to pursue a claim without the need to pay upfront legal fees. With a ‘no win, no fee’ basis, the law firm agrees to handle the case and only charges a success fee in the event of a successful outcome. In the event of an unsuccessful case, the client is not liable to pay these legal fees.

Damages Based Agreements (DBA) are another form of agreement similar to ‘no win, no fee’ arrangements. Under a DBA, the client pays the legal team a percentage of the damages recovered, linking the fees to the amount awarded rather than the time spent on the claim.

In many cases, ‘no win, no fee’ agreements necessitate obtaining an “after the event” (ATE) insurance policy. This insurance coverage safeguards the client against any costs imposed by the opposing party in the event of an unsuccessful case.

In summary, legal funding and insurance options play a crucial role in making legal representation more accessible and manageable for individuals and businesses, offering financial support and protection throughout the legal process.

How can Annecto Legal assist?

Annecto Legal help clients realise the value of their litigation claims. Get in touch with an expert member of our team to find out which litigation cover is the right litigation funding choice for you.

Our firm is authorised and regulated by the Financial Conduct Authority as an Appointed Representative of 2direct Limited. We have a registered office located in Manchester.

Call us today 0800 612 6587, or our business development director, Mark Beaumont, can be contacted by email mark.beaumont@annectolegal.co.uk