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Legal expense insurance - litigation funding

Litigation funding can be expensive, may take years to resolve and can be a stressful unappealing prospect for businesses. If you lose then the general rule is that you pay the winner’s costs. This is on top of covering your own legal costs. The thought of this for many businesses can be very off-putting, even for most successful businesses who have a strong claim.

In this position, businesses are likely to consider other ways of funding litigation that pose less of a financial risk to their business. One alternative funding method is legal expenses insurance (LEI) - but what should you consider before purchasing LEI?

 

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Are you already covered?

Before purchasing LEI, it may be worthwhile reviewing all your current insurance policies. LEI is commonly attached to insurance policies such as motor, home, credit card and travel insurance. You may also be entitled to free legal advice if you are a member of professional bodies or organisations, such as trade unions. Therefore, it is a good idea to see whether you already have the benefit of a LEI policy that you had previously overlooked or forgotten about.

Are you guaranteed to get cover?

The vast majority of insurers will require your case to enjoy prospects of success in excess of 50%, i.e. that there is more chance of you winning your case rather than losing. If after review of your case, your insurer is of the view that your case does not enjoy prospects of success, your insurer is unlikely to fund your case.

Are there time limits for you to consider?

There are normally limitation periods that you must adhere to if you wish to pursue a claim. If you try to make a claim beyond the limitation period, you will be prevented from doing so. The limitation periods differ depending on the type of dispute you are involved in.

As well as limitation periods, there are normally time limits in which you must report your claim to your insurer. As a rule of thumb, it is advisable to report the dispute to your insurer as soon as possible to seek legal advice on the appropriate next steps.

Is it proportionate to pursue a claim?

The value or ‘quantum’ of your case is important. Your insurer will review your case to determine whether it is proportionate for them to provide cover for your case. For example, if you are in dispute with another party over £1,000 but it will cost your insurer £2,000 to resolve the dispute, it is unlikely to be proportionate for your insurer to pursue the case on your behalf. Insurers will also consider whether your opponent is solvent and whether they can meet any Court judgment you may obtain against them. If you opponent is in financial difficulty or if they do not have any assets, your insurer may not provide cover for your case as they are unlikely to recover their costs from your opponent if you win your case. Your insurer will therefore take a commercial decision as to whether they will provide funding for your case.

If you need any further information regarding this process please contact our commercial litigation team on 01616 966 229.

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