The Evolving Role of ATE Insurance in Litigation Funding

In the first fireside chat of IMN’s inaugural event, Lucy Pert, Partner at Hausfeld, spoke with Rocco Pirozzolo, Underwriting Director at Harbour Underwriting, about the evolving role of ATE insurance in litigation funding.

The conversation began with a discussion of how the nature and demand for ATE Insurance has evolved over the last two decades. Mr Pirozzolo highlighted that between 2000 and 2010, most ATE policies were taken out directly with litigants. However, after first encountering litigation funding in 2007, the sector has experienced a complete reversal, with most policies in the last decade coming from funders.

In terms of the types of cases that are attracting ATE Insurance, Pirozzolo claims that it has largely followed the trends of the wider litigation funding industry. Over time, the volume of cases has shifted from unitary claims and insolvency misconduct claims to a large amount of class action claims, as well as commercial litigation cases which are now attracting third-party funding.

Discussing the challenges that ATE insurers face, Pirozzolo highlights that they cannot afford to blindly rely on funders’ due diligence, as there are different levels of return on investment and risk compared to funders. Similarly, when assessing a case, Pirozzolo argues that while funders are able to first analyze the possibility of enforcement and the true value of the case, insurers must nearly always begin by solely assessing the merits of the case.

Responding to Ms. Pert’s question around the high costs of ATE Insurance, Mr Pirozzolo argues that ATE is unique due to the binary outcomes that are possible for any given policy. As a result, there is very little margin for error compared to other types of insurance which can rely on the principle of many premiums paying for a small number of claims.

Furthermore, Pirozzolo rejected the idea that the high costs of litigating is the fault of funders, lawyers or insurers individually, instead pointing to the current environment which has fueled these rising expenses. He went on to say that despite these costs, it is the partnership between these players which allows the litigation funding industry to deliver wider access to justice.

The fireside chat concluded with Mr Pirozzolo offering his view on what anyone should look for in a good ATE provider. In particular, he highlighted an ‘A’ rating from one of the agencies, the ability for the insurers to deal with complex issues such as providing a deed of indemnity, and finally ensuring that the provider has a team of experienced and high quality professionals.