BTE or ATE? What you should be advising commercial legal expenses insurance customers

Authored by DAS

Carol Parsons, Head of ATE at DAS, explains the difference between ATE and BTE insurance

Having spent 6 years on the BTE side of the business, to which a certain amount of allegiance still lies, I appreciate that there are compelling reasons for brokers to advise customers to purchase legal expense insurance as part and parcel of their general insurance portfolio and therefore, in advance of any possible need for the product arising.

Is it though, the best option for your customer? Understanding the difference between ATE and BTE will help you provide the right advice to your customers.

Taking legal expenses cover out as part of your customers general insurance portfolio will almost inevitably result in a very modest premium for the customer, essentially where a broker already has a scheme arrangement with the insurer. After the Event insurance can feel comparatively more expensive when compared to scheme premiums, the nature of the risk being very different at the point insurance cover is taken out.

Perhaps one of the reasons driving the higher premiums in standalone BTE policies is the greater awareness that the customer has of the policy, which in turn leads to a higher claims frequency.

Usually, ATE premiums can be offered on a deferred and contingent basis meaning that the customer is only responsible to pay the premium on conclusion of the case and only in the event that the case is successful. ATE premiums are often staged to ensure that they remain as proportionate as possible with cases settling early attracting a lower premium than those settling at trial.

Whilst recoverability of ATE premiums has all but disappeared over the years, it still remains the case that premiums can be recovered in publication and privacy disputes and for certain disbursements incurred in clinical negligence cases. Standalone BTE policies are also offered but premiums can be significantly higher than those found on scheme business and in some respects simply from a pricing perspective can be comparable to ATE premiums.

Perhaps one of the reasons driving the higher premiums in standalone BTE policies is the greater awareness that the customer has of the policy which in turn leads to a higher claims frequency. Unlike ATE which covers a single event, BTE policies will support more than one claim per policy year.

Cover under a BTE policy tends to be provided on a standard basis and will generally include cover for the following claim types;

• Employment
• Legal defence (prosecution defence & internal hearings, such as the Law society )
• Statutory licence
• Contract disputes
• Debt recovery
• Property & personal injury
• Tax disputes

Unlike ATE, a BTE policy will provide cover for case types where recovery of costs in not available, for example cases being pursued in the Employment Tribunal. In addition, certain policies will also act almost as an indemnity insurance in the event that an Employment Tribunal awards damages in favour of the claimant by covering that compensatory award.

Customers with BTE policies will need to familiarise themselves with the policy exclusions as declinature rates can be high on BTE with the most common reasons for not covering a claim being pre-inception, policy interpretation (who counts as an employee for example) and legal merit.

ATE is capable of catering for less run of the mill cases which are unlikely to be covered by the standard claim types and will also step in where exclusions under BTE policies may kick in. For example, ATE may be able to assist with investment or shareholding disputes, defamation cases, insolvency and large scale commercial disputes where the limit of indemnity under a BTE policy could be inadequate to protect the interests of the claimant.

ATE is capable of catering for less run of the mill cases which are unlikely to be covered by the standard claim types and will also step in where exclusions under BTE policies may kick in.

Limits of indemnity under a BTE policy will be fixed at policy inception with no scope to extend terms if needed. Whilst larger limits of indemnity may be available on a standalone basis, limits tend to be relatively modest. In the event that indemnity is considered insufficient to support a claim to its conclusion, the claimant will either need to secure alternative funding themselves or potentially seek an ATE top-up. Indemnity under an ATE policy however is tailored to the specific needs of the case as the lawyer will have an informed view on the potential liability to the customer in the event that the case is unsuccessful.

Top-up insurance is expensive as, by its very nature, the risk profile of the case will be very different at the point top-up is sought. Working with the lawyer (who has conduct of the case) to place the insurance at the earliest stage possible and with a realistic view as to potential adverse costs and disbursements, will ultimately help keep the ATE premium to a reasonable and proportionate level to the value of the claim.

Customer choice in terms of which lawyer handles their claim can be of great importance to commercial customers. Working with someone who has either worked with the business before or who has come recommended can alleviate some of the anxiety that comes with litigation. ATE policies place no restriction on a customer’s choice of lawyer unlike BTE insurance where restrictions on choice of lawyer are common, with there being no freedom of choice in who represents you until the point of litigation. BTE Customers will be directed to panel law firms with whom the customer will have no personal connection.

Customer choice in terms of which lawyer handles their claim can be of great importance to commercial customers…ATE policies place no restriction on a customer’s choice of lawyer, unlike BTE insurance

Those panel law firms may be subject to strict reporting requirements and in some instances will be required to seek approval from the BTE insurer prior to taking certain steps in the proceedings. Whilst reporting requirements do exist in ATE a more flexible approach is taken where the lawyer is left to take steps in the proceedings that they consider are reasonable and necessary, enabling litigation to flow unimpeded by the requirements of the insurer. As the lawyers own costs are only paid on a successful conclusion, the interests of the ATE insurer are very firmly aligned with that of the lawyer facilitating this, but with a more ‘hands-off’ approach.

As access to justice becomes more expensive, advising your customers on the availability of legal expenses insurance could mean the difference between the success or failure of that business in the event that they become involved in a legal dispute.