Herbert Smith has become the one of the first firms to use after the event (ATE) insurance to cover the bulk of a client’s litigation costs.
In an unusual move, the firm managed to cover a large proportion of a client’s legal costs with the help of specialist broker The Judge.
The deal could help develop ATE insurance as a means for supporting high value litigation, placing it in direct competition with third-party litigation funding.
The news comes as external funding methods become increasingly popular with law firms, as demonstrated by Legal Week research earlier this year which found that eight out of 10 of the City’s top law firms were using or assessing external funding for clients.
ATE insurance has commonly been used to secure cover against adverse costs and other expenses such as expert reports and court fees, but to date has not been widely used for covering a client’s own legal fees.
Herbert Smith litigation head Sonya Leydecker said: “It is a brave new world and firms need to be aware of what is out there. It is a question of what suits a particular case and to make the client aware of all the options available to them.”
David Greene, head of litigation at UK group action specialist Edwin Coe, said: “Using ATE to cover your side’s solicitors’ fees is pretty unusual, but I think we will see head-to-head competition between that type of policy and third-party funding in the future.”
The development comes as companies also move towards using third-party funding for defending high-stakes litigation, with some hedge funds willing to provide funding to defendants, accepting a fee in return for taking on a percentage of the risk.
