After It Happens: The Insurance That Protects the Outcome

Audio Transcript:

Speaker 1: 

You are listening to The Legal Solutions Podcast with ARAG, exploring legal expense insurance and protection beyond the policy. 

Pete Tessier: 

Hey, everyone. Welcome to The Legal Solutions Podcast. I’m Pete Tessier here with Curt Wyatt, and we are in our final installment talking about the ARAG product. And we have Francesca Spagnuolo, who is the ATE Manager. And that means we’re talking about after-the-event insurance. And, Curt, this is a different kind of viewpoint when you look to buy insurance. 

Curt Wyatt: 

Yeah, absolutely, Pete. I’ve learned a lot on this episode. And I think that for our broker audience and the others that listen to these episodes, it’s enlightening to see how ARAG’s diving into the insurance space when it comes to legal costs and how they do it on all these different levels. And it makes sense that this product’s sold the way it is, and it’s going to get explained to you throughout the show. 

Pete Tessier: 

Yeah. Francesca’s going to shed some light on how something works when you buy it after an event and what kind of events are eligible for this kind of coverage. And I think that’s going to be refreshing to hear because it’s a real paradigm shift in thinking for the P&C insurance industry. Everyone’s so used to preparing for an event, but how do you actually manage an event when it comes to insurance after it’s happened? And Francesca’s going to clarify where those things go. Curt, the other thing, I think, that is interesting is she’s going to talk about why there are expenses when it comes to legal disputes that maybe you don’t think about all the time, right? 

Curt Wyatt: 

Yeah, for sure. And, in addition to that, Pete, it’s also the idea that this is sort of helping society in a way, because there’s people out there that may not be pursuing legal options when the fact is they have more there as far as what can and can’t be done when it means stepping up and fighting for what you think you deserve. 

Pete Tessier: 

That’s right. And again, this is about access to justice, as ARAG likes to say. And so I think we should give you access to Francesca so you can hear all about this and why after-the-event insurance is probably a product you want to have on your radar. And finally, after rambling along, we’ve now got Francesca Spagnuolo, who is the ATE Manager for ARAG. Welcome to the show, Francesca. 

Francesca Spagnuolo: 

Thank you so much for having me. It’s really a pleasure to be here and be able to talk about something I feel so fondly about. 

Pete Tessier: 

Well, you’re batting sort of cleanup in this series. So we’re going to get into one of the things that we really don’t think about when it comes to insurance, particularly when you live in the property and casualty side, and that is coverage for something that happens after an event. So, what is after-the-event insurance? And how does it work compared to the standard insurance method of preparing for an event with coverage? 

Francesca Spagnuolo: 

Yeah, so that’s a really good question. And it’s honestly the question that we get asked so often because it’s really a strange concept to wrap your head around, especially if you’re used to traditional insurance coverage. So, similar to a standard BTE LEI coverage, after-the-event coverage assists litigants in their pursuit to access to justice. As you know, typical insurance protects against the risk of an event occurring. You buy it with the hope you may never need it, whereas ATE insurance is taken out after a dispute has already happened, so you already know you want or you need it. So, the key difference is that ATE insures the outcome of the civil case as opposed to a standard LEI insurance, which insures the risk of the possibility of a case. So just to kind of wrap that up, I find that a good way to explain it is instead of asking what if something happens, ATE asks, “Now that something has happened, should my access to justice really depend on if I can afford the risk?” 

Curt Wyatt: 

Hi, it’s Curt here. And that’s super interesting because most coverages can’t be purchased, sort of, after an event. We always say you can’t buy insurance once the fire [has] started or the house has been broken into or what have you. So, how do you find your clients react, then, to that scenario? It’s such that they can see this coming. How often do they not buy it, I guess? 

Francesca Spagnuolo: 

Yeah. So our clients are the law firms and the litigants themselves. So they already know that this product is available to them, and they know what the coverage types are. So, typically, like when a plaintiff is looking to retain a lawyer, they’re usually faced with, like, a phrase—and I’m sure you’ve heard of it—like, “We don’t get paid unless you win,” which is true in the case of not receiving a recovery on your case. However, there’s still a cost of starting and pursuing litigation, which is where an ATE policy comes into play. When commencing litigation, there’s, like, numerous charges that a plaintiff may not even think about outside of the actual fees incurred for retaining a lawyer, ranging from the high costs of items such as expert reports all the way to administrative items [such] as court filings and photocopying. So, at its core, ATE insurance is designed to protect against the cost risk of starting and pursuing the litigation. 

Curt Wyatt: 

No, and that’s super interesting because, like you say, it’s taking all those pieces of a case, whether, like you say, incidental costs, all those things that go with it, which, again, a lot of people don’t realize that these things add up. So, clearly, you have found that offering this as an option, there’s space for it in the market. 

Francesca Spagnuolo: 

Yeah, most definitely. So the ATE policy, it typically covers the costs of the opponent’s legal costs if you were to lose. So, if the insured loses their case, that would cover the costs associated with it, including the court fees, expert reports, et cetera. But there’s also a component where it satisfies the security for costs component, which can sometimes also limit a claimant’s ability to even proceed with their case. So, if you’re not familiar with security of costs, it’s basically an order requiring a plaintiff to provide a guarantee that they can cover the defendant’s legal fees if a lawsuit fails. So there’s definitely a value-added proposition of the ATE policy to be able to pursue your access to justice through the ATE policy. 

Pete Tessier: 

Francesca, does this, sort of, play into the realm of if you don’t have an ATE coverage or any legal expense coverage, you’re also potentially financing your legal expenses through a law firm that you may hire to help you with any kind of legal dispute? Is this sort of like an offset hedge against that as well, so that you’re not, sort of, getting yourself into debt to finance something, as law firms are now offering finance plans? 

Francesca Spagnuolo: 

Yeah, I mean, it could be, for sure. I would say the model is a little bit different, considering it’s contingent on the success of the actual claim. So it’s a tad bit different in terms of the funding component versus this component. We’re not necessarily covering the costs of litigation until the end of the file. So in terms of funding versus litigation insurance, it’s a tad bit different. 

Pete Tessier: 

Knowing that, I think it’s a great segue into the next question, which is about how do brokers differentiate between before-the-event and after-the-event insurance when explaining it to insureds? How would you advise them to, sort of, make that sales pitch and that differentiation, and where the value proposition is for each? 

Francesca Spagnuolo: 

Yeah. So BTE and ATE both deal with legal costs, but they solve completely different problems at very different moments. So, unlike your standard BTE LEI policy, ATE is purchased after the accident has occurred, and the lawyer working on the case has already vetted and established that there’s a merit to the case. So that’s what makes the product very unique. So ARAG, the law firm, the plaintiff—who’s also the insured—align their interests from the outset. And then, I would say, the other single most differentiating component is also the fact that—and probably the most difficult to understand, to be honest with you—the premium is only paid contingent on the case’s outcome. So if they win their case, we are paid a premium, but if they lose their case, we pay a claim and no premium is owed. So that kind of creates alignment between us and also just the comfort of knowing that the plaintiff is protected from adverse cost exposure and the law firm has the confidence to fully advance the case without financial constraints. 

Curt Wyatt: 

Okay. So that’s super interesting because like, “Hey, what the heck? What do you got to lose?” But let’s face it, there’s a cost, right? So, like you say, there’s a calculation there. So brokers have to talk about that with their clients, and then they’re trying to work [with] them through the idea of spending some potential money if they win. How is that, sort of, calculated? How do you think it’s best for brokers to describe what that cost is? 

Francesca Spagnuolo: 

Okay. So the key most important thing for us in terms of prospective relationships is really aligning our interests with the law firms that we collaborate with. So, as I mentioned before, premium is contingent on the success of the case. So why would a law firm work on a file if they didn’t think it would be successful? And, really, that’s like the anchor and fundamental alignment that we have together. So for ARAG, we are a trailblazer in the LEI space and in the ATE space, which means that we have a plethora of information and data and analytics that allow us to understand what, exactly, good partnerships look like, and that allows us to price the product accordingly. Our job is to make sure that we have the appropriate amount of winning files to create a sufficient premium pool to actually cover the losses that we will incur. 

So, again, it brings me back to my previous point about aligning our interests. The model works because we partner with firms that have the same interest of bringing access to justice to the litigants we represent, and that’s how we price our product. 

Pete Tessier: 

So, Francesca, you figured out the secret sauce and how to price it. What about where it gets used? That obviously comes into effect when you think about pricing. So who and how is ATE often used? What are some of the sort of classes of insurance where you tend to see more use cases? So when people think about this, they say, “Hey, I might have an opportunity to put this into my repertoire of products or advise my clients a little better.” 

Francesca Spagnuolo: 

Yeah. So, as I mentioned, ATE is very niche, and it’s mostly niche to jurisdictions. So the only jurisdictions that ATE actually works [in] is where adverse costs are awarded and recoverable. So, most notably in the UK and in Canada. But, in Canada, we see very practical applications, so mostly in personal injury litigation—so your motor vehicle accidents, slip and falls, maybe an occupier’s liability, or a product issue. So in the years past, ATE has been mostly used by personal injury litigants, and that’s kind of where the imbalance is most real. You’re really kind of serving the complex-injury people and the expert evidence is very expensive and timelines are long, and where the courts are delayed, the courts are backlogged and that’s kind of where you need this product the most. But right now we’re particularly focused in medical malpractice. So the cost of expert reports in medical malpractice can be prohibitive. 

You’re looking at costs of 5,000 to maybe 20,000 for an expert report. And when the average citizen sees that price, I mean, that’s very expensive. It’s very expensive to pursue your litigation through knowing that you could be on the hook for that. So, really, that’s kind of the environment that we’re working in right now. 

Pete Tessier: 

Francesca, you’ve kind of covered all the bases so succinctly—boy, I challenged myself to say that—and very comprehensively. And I think we’ve got a much greater understanding of why ATE is a valuable product and how it works because, again, for most people in the P&C sector, we’re not thinking about what happens after the event, we’re thinking about the claim service, not actually buying a product. So thanks for joining us, and we look forward to next installments with ARAG when they happen. 

Francesca Spagnuolo: 

Yeah, perfect. Thank you so much for having me. It was lovely to speak with you guys. 

Pete Tessier: 

Curt, I learned some stuff there. And I think we told the audience in the intro that you were going to learn some things. And, yeah, I was really unaware of a few things about all the issues that come into a legal case and how you can actually now buy insurance against that, or for that, because those expenses are not obvious to everyone. 

Curt Wyatt: 

Yeah, Pete, for sure. And as [a] former broker like you, I always find it interesting when we can tap into other industries and sort of find ways to create partnerships. And this is a good example of that, where a broker community, the broker community could tap into the legal community and talk to them a little more about ways they can work collaboratively together. And, like you said earlier, help people find legal justice out of the system and be better at what we do. 

Pete Tessier: 

Yeah. There’s a real opportunity here, Curt. And I think a lot of times brokers don’t want to venture into the legal community as part of a sales process, but you got to think about it. Bodily injury claims, ARAG would like to look at that. Medical malpractice, they’d like to look at that; motor vehicle accidents. But you’ve got to tap into where that legal expense comes from and get it sort of sold in that community. So, if you’re looking at a point of funding litigation, perhaps after-the-event insurance is a better option for you and may be something that covers a lot more expenses than you think. In particular, I was unaware that court costs may have to be paid by the defendant, should you win or should you lose—sorry, if you’re the plaintiff. And that’s a big issue because those can mount into thousands of dollars and also expert witness testimony. 

I had no idea the value of what those go for, and that’s something that has to be paid. 

Curt Wyatt: 

Yeah, for sure, Pete. And nice to see those options available to the broker community and great for Canadians. 

Pete Tessier: 

Yeah. So thanks again for joining us on the series of Access to Justice with ARAG, and we look forward to talking to everyone in the future. 

Speaker 1: 

That was The ARAG Legal Solutions Podcast. Thank you for listening.