It has taken nearly 20 years for the United Kingdom to move from a time when it was unlawful (or champertous) for a lawyer to share in the fruits of litigation, to the introduction of U.S.-style contingency fee arrangements. Although the legislators have shied away from using the expression “contingency fee” – instead naming them “Damages-Based Agreements” or “DBAs” – they are in all respects a contingency fee arrangement whereby lawyers can retain a percentage of the damages of up to 25% in personal injury cases, 35% in employment cases, and 50% in most other cases. These arrangements are now lawful in the U.K. with effect from April 1, 2013.
The impact on litigation and on insurers is likely to be significant, as a U.S.-style plaintiff bar develops and seeks to make U.S.-style returns from litigation. This will be fueled by the growth of the litigation funding industry, which includes the use of bespoke “after-the-event” insurance solutions to protect plaintiffs from the risk of adverse costs exposure in the event litigation is unsuccessful.
Where the U.K. leads, other countries may follow. Several countries – Australia, New Zealand, Hong Kong and Bermuda for example – have legal systems based on English law and may look to enact similar legislation. Insurers and reinsurers with exposure to these countries should watch developments closely, as will we, and will provide updates on any developments.