GFOABC Dollars & Sense - March 2020 - Issue 110

Page 15

Leveling the Field – How Legal Expense Coverage has Changed the Legal Landscape for Local Government

Q: What’s the difference between a lawyer and a herd of buffalo? A: The lawyer charges more. Legal fees have long been perceived as a significant barrier to access to justice. The cost of starting a dispute in the court system can be significant, and sometimes not worth the end result. While it sometimes prevents parties from being fully compensated for their losses, it can also dissuade parties from pursuing claims that have no merit or likelihood of success. But the legal landscape has begun to change. A few years ago, we started to see the influence of a new type of insurance emerge in the MIABC’s liability claims. Some plaintiffs were no longer hesitant to pursue their claims to trial. They no longer feared that if they were unsuccessful, they would have to pay both their own legal expenses and the local government’s legal expenses out of their own pocket. It seems that many plaintiff law firms were purchasing “After the Event Insurance” or “Adverse Costs Insurance” (“ATE” insurance) for their clients. ATE insurance is a product that plaintiffs and plaintiff firms can purchase to cover the legal expenses of a claim if the claim is unsuccessful. The premise of ATE insurance is that

it levels the playing field for plaintiffs and defendants, thereby increasing access to justice. A plaintiff’s decision to pursue their case would no longer be influenced by their ability to pay costs if a decision didn’t go their way. In some cases, ATE Insurance has made it more difficult for us to settle claims as plaintiffs can be more reluctant to consider and accept what we think is a reasonable settlement. The emergence of insurance coverage for legal expenses has not

been all bad news for local governments. In fact, the upside is that this coverage is also available for local governments to purchase in order to cover the costs associated with their own legal actions, not otherwise covered by their liability insurer. Legal Expense Insurance coverage can fill coverage gaps in a local government’s commercial insurance portfolio. It also provides resources for local governments to protect themselves and in some cases,

MARCH 2020 • DOLLARS & SENSE PERSPECTIVE  | 15


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