Press Release
Post Dispute Insurance for the construction industry.
Press Release
Post Dispute Insurance for the construction industry.
The cost of promoting or defending a claim in arbitration through the dispute mechanisms in the standard civil and building forms of contracts is exceedingly high.
A 5-day arbitration where each party is represented by attorney and counsel will require approximately 5 days of preparation and may involve one or two experts on each side. The costs for each side prior to any award of costs, with the parties sharing the common costs; arbitration fees, room hire, recording and transcription charges, can easily reach R200 000. The losing party will thus be exposed to its own costs of R200 000 plus approximately R140 000, being the taxed party and party costs of the winning side, a total of R340 000.00
For the first time in South Africa, Legal Protection Services are able to provide a legal expense insurance policy which will cover the costs of the losing party.
This policy is taken out after the dispute has commenced and is available to cover either the insured's own costs and/or the opponent's costs. The policy does not cash flow the dispute directly but pays the costs once the insured has had an award of costs made against it.
The premiums are much higher than the insurance package also provided by LPS to the construction industry for "before the event" cover. Typically the premium will be 20 to 30% of the indemnity limits offered. However very flexible premium payments are available. The policy may be taken out for an initial payment equivalent to 7.5% of the indemnity offered. The second premium payment will become due the day before the arbitration, but will only become payable upon award of the arbitrator providing this is not more than 3 months after the completion of the hearing.
Although this policy does not cash flow the dispute directly it may be ceded to a financial institution as collateral security to make a pool of funds available to fight or defend the arbitration.
The opportunity to limit the downside risk of the costs of an arbitration as well as to use the policy to obtain financial facilities to fight the case is surely going to provide management with effective options to limit risk.