Image: Public Domain Dedication. Public Use Notice of Limitations
Insurers in the after-the-event (ATE) market are bracing for a knock-on effect from a costs ruling that has left Prince Harry and six co-claimants facing legal bills far beyond the cover they bought. Mr Justice Nicklin's decision not to cap what Associated Newspapers Limited (ANL), publisher of the Daily Mail, can recover has turned what looked like a manageable insured risk into a live question about how group actions get underwritten.
The claimants (the Duke of Sussex, Sir Elton John, David Furnish, Elizabeth Hurley, Sadie Frost, Baroness Doreen Lawrence and Sir Simon Hughes) lost their long-running privacy claim against ANL in July, after an eleven-week trial.
Nicklin J then ruled that costs should be assessed on the indemnity basis rather than the standard basis, a stricter test that drops the usual requirement for costs to be proportionate. He ordered an interim payment on account of £9,544,355, due by 28 August, and declined to set any ceiling on the total ANL could ultimately recover, despite calling the publisher's claimed £34.5m bill "exceptionally high."
The ATE cover reportedly in place totalled around £16.2m, arranged as the litigation's projected costs grew over time. Even before indemnity costs were ordered, that left a gap. Insurance Business UK's earlier analysis of the shortfall found that even a generous 35% reduction to ANL's claimed costs on detailed assessment would still leave claimants roughly £6.22m short and personally exposed for the rest.
For underwriters, the £34.5m headline figure matters less than the mechanism behind it. That's ANL's own claimed costs, not the final assessed amount. An indemnity costs order combined with no cap on recoverable costs is close to the worst-case pricing scenario for a policy written years earlier against a much smaller cost estimate. Nick McDonnell, a costs lawyer and director at Kain Knight, told City AM that the ruling could prompt ATE insurers to factor indemnity costs order more heavily into their underwriting given the decision.
This is a real change for a market that has typically underwritten to an approved costs budget, treating a court-managed ceiling as a fairly reliable proxy for eventual exposure. This case shows a budget can be blown through entirely once a judge finds a claimant's conduct fell "well outside the norm" (Nicklin's own words when ordering indemnity costs, which strips away the usual budgeting protections).
Rocco Pirozzolo, managing director and underwriting director at Harbour Underwriting, has argued the case should push pricing higher across the board. Once cover is bound, insurers have no say over how the litigation is actually run, so the risk of an eventual indemnity order arguably deserves its own loading from day one.
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Timing matters here too. The London ATE and litigation funding market has been growing steadily: industry estimates put UK litigation funding premiums somewhere between £400m and £650m a year, with ATE cover adding a further £200m to £275m, and new entrants still arriving.
CAC's launch of a London contingent-risk team earlier this year was one sign of capital still chasing this business. A case this visible, running from initial cover through to a personal shortfall for A-list claimants, could easily make some of that capital more cautious, or at least pickier about what it will write.
Pricing conversations may start earlier too, before a policy is even bound. Most ATE providers already ask for an independent barrister's opinion showing a 60% or better chance of success before they'll write cover, alongside their own view of the legal merits.
Mark Borkowski, a reputation and crisis consultant, told City AM that after this ruling "insurers will start asking much harder questions" of claimants and their lawyers before agreeing terms, not just on the odds of winning, but on how costs are likely to escalate if they lose, and how a group of claimants might come across to a judge if the case turns adversarial.
The seven claimants still have to find nearly £9.5m within days, whatever happens on the wider costs assessment - the full costs judgment is on the judiciary's website. But brokers and underwriters further from the headlines are likely to keep citing this case for a while yet. It's a rare, fully public example of a costs budget getting blown apart once a judge decides a claimant's conduct was unreasonable - and a reminder that a policy priced against an early-stage estimate can end up covering only a fraction of the eventual bill.
Group privacy and defamation claimants shopping for ATE cover next year should expect higher premiums, tighter limits, or simply a longer list of questions before anyone agrees terms.
