This article was originally written for and featured in Insurance Day.

Following a review by Lord Justice Jackson in the UK into the costs of civil litigation, changes have been made to the existing costs regime, expected to have a significant impact on the insurance industry, both as providers of products and as litigants.

Of particular interest to the industry are:

  • Success fees and after-the-event (ATE) premiums will no longer be recoverable from the losing party;
  • A rise in general damages to 10%;
  • Introduction of qualified one-way costs shifting for personal injury and clinical negligence cases; 
  • Damages-based agreements (contingency fees) will be allowed; and
  • Only proportionate costs will be recoverable between the parties.

Most of the reforms should be welcome news to insurers when defending claims brought against them. In smaller claims, the costs of the litigation have often been greater than the value of the claims owing to claimants’ solicitors acting on “no-win, no-fee” arrangements with 100% success fees.

Such arrangements have also seen insurers paying out on unmeritorious claims to avoid those cost risks. However, from April, success fees, and any ATE insurance premium, will no longer be recoverable from the other side.

As an alternative, claimants’ solicitors can enter into damages-based agreements with clients where-by they can take up to half of the damages recovered. Also, the new rules stipulate costs should be awarded to a winning party on a proportionate basis so the recoverability of costs is more aligned to the claim value.

The costs reforms benefit claimants too. The effect of one-way costs shifting in personal injury and clinical negligence claims is claimants will not have to pay a successful defendant’s costs. Successful claimants will also be awarded a 10% increase in general damages awards.

Since ATE is likely to be a less popular product because the insured will have to pay the premium, providers of such products are likely to align themselves more closely with litigation funders who will want to ensure the funded party had ATE cover.

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