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Amongst other purposes, the N251 Notice of Funding allows an insured client to notify the opponent in litigation that they have taken out After the Event insurance (‘ATE’).

In October 2009, the rules regarding the Notice of Funding changed. It was already necessary for an insured party to put their opponent on notice of the existence of their ATE policy in order to maximise their prospects of recovering the legal expenses insurance premium, but from October 2010 a greater level of disclosure is required.

Under rule 44.15 of the Civil Procedure Rules, “a party who seeks to recover an additional liability must provide information about the funding arrangement to the court and to other parties as required by a rule, practice direction or court order”.

Section 19 of the Costs Practice Direction explains precisely what needs to be disclosed. The party must give the name of the legal expenses insurer; the date of the ATE insurance policy inception; the litigation to which it relates and, following judicial commentary in Rogers v Merhyr Tydfil, the trigger points apply to the staged ATE insurance premium, if applicable.

Crucially however, it must also state the level of ATE insurance cover that the insured has purchased. I am not aware of how much consultation went into that change and who discussed the amendment but this seemingly innocuous change has a significant impact of the bargaining position between the parties in certain types of legal disputes. Where a defendant in the litigation has far greater resource than a claimant, which is frequently the case when ATE insurance is purchased, the defendant can exploit their knowledge about the claimant’s level of cover to stifle the claim by escalating costs beyond the claimant’s ATE insurance cover. They will know that, if the client struggles and ultimately fails to get the additional ATE insurance cover to deal with the defendant’s aggressive legal spend, the claimant’s legal action might fold through lack of funding for the litigation. In a high value piece of commercial litigation for example, it might just be worth testing the claimant’s resolve. The mandatory disclosure under N251 Notice of Funding serves to encourage such behaviour which is certainly not in the spirit of Jackson or Woolf.

Trying to price the claimant out of the litigation is a dangerous tactic for defendants who would be risking making a rod for their own back by increasing their exposure to more ATE insurance premium, assuming the legal expenses insurer is willing to provide the additional insurance cover the claimant would then need. However, that risk aside, the defendants gain intelligence prejudicial to their opponent’s case from the mandatory disclosure in the N251 form that enables them to formulate a strategy for escalating costs above the ATE insurance cover in place.

Why then can we not simply make the level of ATE insurance cover a non-mandatory field? Some defendants might argue that it provides protection for defendants who may face a shortfall in their recovery from the claimant if they are successful in defending the litigation. I firmly believe that is what a security for costs application is for.

If the claimant in the legal proceedings seeks to rely on the ATE insurance cover, then the court can decide whether the policy is adequate and whether the level of cover is sufficient. In accordance with the spirit of Master Hurst’s judgement in Ocensa Pipeline Group Litigation [2010] the court does look at the legal expenses insurance policy to determine its suitability, without disclosing the level of insurance cover to the opponent.

The blanket requirement for disclosure of the level of ATE insurance cover is prejudicial and unnecessary. If it is helpful to disclose the limit, then no doubt the claimant solicitors would do so but a mandatory obligation aggravates the access to justice problem which the Legal Aid, Sentencing and Punishment of Offenders Bill 2011 is about to make a whole lot worse.