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ATE Insurance Premium Not Recoverable Legal Expenses

ATE Insurance Premium Not Recoverable Legal Expenses

After the event (ATE) insurance is a type of policy taken out after a dispute has arisen to protect against the risk of having to pay the opponent's legal costs if you lose. The UK Supreme Court has held in McGraddie v McGraddie that an ATE insurance premium is not a recoverable cost by the successful party in Scottish proceedings.

In the case, a father successfully appealed in a dispute with his son over the ownership of a house. The father had given his son a cheque for £285,000, most of which the son used to buy a house in his own name. After they fell out, the father began proceedings seeking to have the house transferred to him and ultimately succeeded following this final appeal.

The matter of legal expenses then came to the fore. The father had obtained ATE insurance in respect of his appeal to the Supreme Court. He sought to recover the premium, £40,000, as part of expenses payable to him by the Scottish Legal Aid Board (who had been providing legal aid to the son). The ATE insurance protected the father against his potential liability for his son’s expenses in the event that he lost the appeal, up to a maximum liability of £100,000.

The relevant provisions of the rules of court allow expenses which are reasonably incurred “for conducting the cause”. Lord Neuberger provided the court’s judgment and admitted that it was “perfectly reasonable and sensible” for the father to take out the ATE insurance premium. Nevertheless, in the absence of any express provision permitting it, he decided that one would not expect an ATE premium to be recoverable as it is simply not part of the costs of the appeal as a matter of ordinary language. He concluded that, in the absence of agreement or a specific statutory provision to the contrary, a successful party to litigation cannot recover an ATE premium, however reasonable it was to have incurred it, as part of his costs or expenses of legal proceedings.

Lord Neuberger expressed regret at the decision as he considered it unjust that the father should be out of pocket for rightly challenging the son’s “questionable appeal” at the previous stage of the proceedings. However, the court also acknowledged that a losing party’s potential liability for expenses should not “depend on the successful party’s appetite for...the risk of losing and paying costs”.

This decision from the country’s highest appeal court clarifies the position on recoverability of ATE insurance premiums as expenses of a court action. Although the premium is not recoverable from the unsuccessful party, ATE still offers the ability to hedge your risk.  The commercial terms depend on what the underwriters will offer but some providers do not need the premium paid up front. With them, if you win the case the premium is payable from any damages you recover and if you lose it is not payable at all. The ATE provider would also pay your winning opponent’s costs subject to the terms of the policy itself.

We are happy to provide further advice on obtaining ATE policies or other litigation funding options.

Julie Greig
Senior Associate

LChalmers