After-the-Event Insurance and Funder Interplay

How ATE insurance and litigation funding work together in loser-pays jurisdictions, and where their roles overlap and diverge.

In jurisdictions that follow a loser-pays cost-shifting rule — most notably the United Kingdom and Australia — a claimant who loses a case can be ordered to pay the successful defendant's legal costs in addition to receiving nothing on their own claim. After-the-event insurance is purchased specifically to cover that adverse-costs exposure, typically with a premium that is deferred and contingent, becoming payable only if the case succeeds. Litigation funding, by contrast, provides capital to actually pursue the claim — costs, disbursements, and often working capital — and the two products are frequently used together rather than as substitutes for one another.

In a typical funded claim in a loser-pays jurisdiction, the funder advances capital against the claim's expected value while the claimant separately obtains ATE cover for the adverse-costs risk the funding itself does not address. Funders commonly require ATE insurance as a condition of the funding agreement, since an adverse costs order against an uninsured claimant can create a liability that complicates or undermines the overall economics of the funded matter, even if the funder's own capital is structured as non-recourse to the claimant.

The two underwriting processes are related but distinct. A funder's own case assessment — liability strength, damages methodology, expected duration — often informs, and is sometimes shared with, the ATE insurer's own pricing, since both are assessing the same underlying claim from different angles: the funder pricing the risk of advancing capital against an uncertain outcome, the insurer pricing the risk of the claim failing and triggering an adverse-costs payment. Premium sizing reflects overall case risk in a manner parallel to the funder's own multiple, and in the settlement waterfall, the ATE premium and the funder's return are typically both paid from recovery according to a priority order negotiated at the outset, alongside attorney fees and any other case-related deductions.

Several points require negotiation between funder and insurer. Selection of the ATE provider can be led by the claimant's solicitor, the funder, or negotiated jointly, and disclosure between the two — how much of the funder's own case assessment the insurer sees, and vice versa — affects how independently each prices its side of the risk. Early settlement raises its own question: if a case resolves well before trial, the ATE premium is often subject to a true-up or reduced-premium mechanism reflecting the shorter period of actual cover, rather than the full premium calculated for a matter that proceeds to trial. Some providers now offer combined or bundled funding-and-insurance products specifically to simplify this coordination, pricing both components together rather than as two separately negotiated agreements.

ATE premiums are frequently structured in stages rather than as a single flat amount, increasing at defined procedural milestones — filing, close of disclosure or discovery, and trial — to reflect the insurer's growing exposure as the case advances and the potential adverse-costs liability grows alongside it. This staged structure means the effective cost of ATE cover depends heavily on how far a case actually proceeds before resolving, with a case settling early carrying a materially lower effective premium than one that proceeds through trial. Policy limits are set relative to the anticipated adverse-costs exposure specific to the litigation and jurisdiction, since cost-shifting exposure in complex commercial litigation can be substantial and a policy limit set too low leaves the claimant exposed to the uninsured excess. Some larger, more capitalized funders self-insure adverse-costs exposure across a diversified portfolio of funded matters rather than purchasing ATE cover on each individual case, a strategy that depends on having sufficient scale and diversification for the self-insurance pool to behave predictably in aggregate, similar in logic to how an insurer itself prices and reserves against a large book of policies. Claimants and funders evaluate this build-versus-buy decision case by case, weighing portfolio scale against the cost and certainty a purchased ATE policy provides.

Criterica Capital's global litigation finance structures account for jurisdiction-specific cost-shifting rules and coordinate with ATE arrangements where relevant, aligning our own underwriting with the adverse-costs protection a matter requires in loser-pays jurisdictions. We work directly with a claimant's chosen ATE provider where appropriate, so premium sizing and our own funding terms are calibrated to a consistent view of the underlying case. Claimants and counsel structuring a funded claim in the UK, Australia, or another loser-pays jurisdiction can contact our international team to discuss funding and insurance coordination.

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