Use Of Settlement Offers In Energy Insurance To Avoid Hefty Adverse Costs Bills

This article considers costs escalation in increasingly lengthy energy insurance disputes and analyses the benefits and risks associated with the various types of settlement offers to mitigate costs exposure

Lengthy and complex disputes

The value and complexity of energy insurance claims is broadly increasing alongside the tendency for parties to invest more resource in pursuing and defending claims. Several decades ago, the duration of a trial in an energy insurance claim was far shorter than current durations e.g. the trial at first instance in the NUKILA1 in 1996 was just two weeks whilst the YME MOPUstor litigation2, which was settled prior to trial, had been scheduled for a 12 week trial in 2018. The scheduling of such long trials, usually at least two or three years after proceedings have commenced, is becoming increasingly commonplace.

The shift to longer and more complex trials is reflective of the way in which energy insurance litigation is becoming more heavily engineered, both procedurally and substantively. The disclosure burden (usually falling more heavily on the insured), including electronic disclosure, often spanning relevant periods of several years is added to the numerous niche and detailed expert evidence disciplines that are often in dispute. The fact is, the trials need to be long to cover all of the complicated points of factual and expert evidence.

Consequence of longer trials = cost

One obvious consequence of this complexity is cost. Liability for a party's own costs and possible adverse costs has not traditionally been a primary driver in energy insurance claims where the sums at stake are often hundreds of millions of dollars, sometimes exceeding a billion dollars.

However, where large legal teams are heavily engaged for a period of several years to pursue or defend an energy insurance claim with a long trial, the costs of doing so can be very significant, running to millions of dollars and occasionally tens of millions. On any view, therefore, legal costs are increasingly becoming an aspect of litigation on which parties are beginning to focus.

Costs recovery rules

The general rule in litigation in England is that a successful party recovers a large proportion of its costs from the losing party. This rule incentivises the likely losing party to settle prior to trial. However, where the merits are not clear-cut, the risk of becoming the losing party ought to incentivise both parties to explore pre-trial settlement.

Types...