Insolvency – after the event insurance

Insolvency practitioners may consider taking out ‘after the event’ insurance when embarking on an insolvency procedure, or litigation. All litigation carries with it an element of risk, no matter how confident you are of your claim.

‘After the event’ insurance offers protection from a case’s financial risks. As its name suggests, this type of insurance is different from most insurance policies purchased before a potential event takes place.

Consider the cost, and what’s covered?

Serious consideration should be taken before entering an insurance policy to protect you from your opponent’s costs should you lose. There are several providers out there, and it pays to shop around.

The cover offered will vary from each provider but can range from no up-front fees or costs to a sizeable fee to be paid on day one. The deferred policy will usually mean a higher percentage of realisations should litigation have a successful outcome.

An important point to remember is a win does not necessarily mean you will get paid out. You should check whether the policy requires payment on a win or on a recovery. Again, the best policy will be one that does not require a fee until the insolvency practitioner is actually in funds.

After signing

Once an ‘after the event’ insurance policy has been signed, the insurer must be kept informed at all stages of litigation. If an offer is made by the other side to settle, your insurer should be kept informed and their views sought on the offer made.

The ‘after the event’ policy can usually be recovered from the other side and may encourage your opponent to settle early. But be mindful of global settlements as all parties to the litigation, including the insolvency practitioner, the solicitor, counsellor and insurer will be sharing the same pot of funds.

In summary

Any triggering of an insolvency procedure carries risks, and insolvency practitioners will consider taking out ‘after the event’ insurance to minimise them. Before doing so, they will consider the cost, what is covered by the policy, and the likelihood of a successful outcome. After the policy is signed, they will keep the insurer informed as to what’s happening and of any changes in the procedure.