When is an ATE premium paid from a settlement?

At the end, if the claim succeeds. The deferred, contingent part of the premium becomes payable when the case wins or settles, and is paid out of the recovery under the policy and the funding agreement. If the claim loses, the contingent part is not payable and the insurer pays the adverse costs up to its limit. Any upfront part has already been paid, often by the funder.

Where does the premium usually rank?

Often near the top, because the insurer wants to be paid from proceeds before they are distributed, and the funding agreement may list it with other costs ahead of the funder. Some agreements make the funder responsible for the premium out of its own return. The ranking decides who bears the premium in a modest recovery.

Can the premium be recovered from the losing side?

Generally not in England and Wales since LASPO 2012: section 58C of the Courts and Legal Services Act 1990, inserted by section 46, says a costs order 'may not include provision requiring the payment of an amount in respect of all or part of the premium,' except for prescribed clinical negligence expert-report cover. So the winning claimant's side bears the premium, from the recovery.

How large are premiums?

Large enough to matter. They are priced per case and commonly set as a percentage of the indemnity limit, sometimes staged so the rate rises as the case reaches later milestones. AltStreet's adverse costs insurance page uses an illustration of a deferred, contingent premium of 30% of a GBP 2 million limit. Burford notes adverse costs exposure 'could easily hit GBP 20 million' in multi-defendant antitrust matters, so limits, and premiums, scale with the case.

Who pays if the recovery is too small?

Whoever ranks below. If the premium ranks first, the funder and then the claimant absorb the shortfall; if it ranks after the funder, the claimant does. Some policies cap the contingent premium at a share of damages so a small win does not leave the claimant with nothing.

Does the funder's return apply to the premium?

If the funder pays it, often yes. An upfront premium paid by a funder is usually treated as deployed capital and earns the funder's multiple, so a GBP 50,000 upfront premium at 3.0x becomes a GBP 150,000 claim on proceeds. A deferred premium paid directly from proceeds does not.

Insurance Premium Waterfall

Litigation Finance & Legal Claims

Definition

The insurance premium waterfall is where an after-the-event (ATE) insurance premium sits in the order of payment from a case's proceeds. Most ATE premiums are largely deferred and contingent: Burford describes 'a small upfront premium (which can be paid by a funder) with the majority contingent on the claim's success.' The deferred amount is then paid from the recovery, ahead of, alongside or after the funder's return, as the funding agreement and policy provide.

Why it matters

ATE premiums are one of the larger deductions between a headline settlement and the claimant's net, and because most of the premium is paid only on success, it is easy to leave out of a case's economics. Where it ranks determines who bears it in a modest recovery, and whether the funder's multiple applies to it changes its real cost. For an investor, a premium ranking ahead of the funder reduces the funder's take on small wins; one ranking behind leaves more of the burden on the claimant. Ask where premiums sit in each waterfall, whether upfront premiums count as deployed capital, and whether contingent premiums are capped.

Common misconceptions

•A contingent premium is not avoided by winning, because it becomes payable precisely when the claim succeeds.
•The loser does not pay the winner's premium in England and Wales, because section 58C generally bars including it in a costs order.
•Premium ranking is not standard, because the policy and the funding agreement decide whether it comes before, beside or after the funder.
•An upfront premium paid by the funder is not a neutral cost, because the funder's multiple usually applies to it as deployed capital.
•A premium is not small because the upfront part is small, because most of it is deferred and contingent.

Technical details

Worked example (illustrative): GBP 8 million settlement, three rankings

Funder deployed GBP 2.0 million (including a GBP 50,000 upfront premium) at 2.5x: entitlement GBP 5.0 million. Deferred premium: GBP 600,000.

Premium first: insurer GBP 0.6 million, funder GBP 5.0 million, claimant GBP 2.4 million.

Premium after the funder: funder GBP 5.0 million, insurer GBP 0.6 million, claimant GBP 2.4 million; the same at GBP 8 million, but at GBP 5.3 million the claimant gets nothing either way and the premium is short GBP 300,000 if it ranks last.

Funder pays the premium from its return: funder GBP 4.4 million net, claimant GBP 3.0 million.

The upfront GBP 50,000 at 2.5x became GBP 125,000 of the funder's entitlement.

Premium structures

Upfront: small, often paid by the funder.

Deferred and contingent: payable only on success, from proceeds.

Staged: rate rises as the case passes milestones such as disclosure or trial.

Capped: limited to a share of damages recovered.

Self-insuring: the funder takes the risk itself for an extra share of proceeds.

What AltStreet's reviews and filings show

Burford's 'Adverse Costs and Insurance' note says that 'in Europe, the UK and much of the common law world, the principle is that the loser in litigation will pay the winner's costs,' that GBP 5 million for a defendant's costs to trial 'is not seen as ridiculous,' and that exposure in a cartel or antitrust matter with several defendants 'could easily hit GBP 20 million'; a funder without insurance 'will need to take an additional slice of the proceeds from the claim to take this risk on its balance sheet.'

LASPO 2012 section 46 (section 58C, Courts and Legal Services Act 1990): premiums generally not recoverable from the losing side.

Burford 10-Q (September 30, 2026): $47.0 million of definitive legal risk commitments, its indemnity and insurance business for adverse costs.

Zerify 8-K EX-10.1 (August 2024): an example of costs ranking first in a proceeds order, reimbursed with 15% a year.

Questions about premiums

How large is the deferred premium relative to the limit and to likely damages?

Where does it rank against the funder and the claimant?

Does the funder's multiple apply to any premium it paid?

Is the contingent premium capped as a share of damages?

Does the premium step up at milestones?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

When is an ATE premium paid from a settlement?: At the end, if the claim succeeds. The deferred, contingent part of the premium becomes payable when the case wins or settles, and is paid out of the recovery under the policy and the funding agreement. If the claim loses, the contingent part is not payable and the insurer pays the adverse costs up to its limit. Any upfront part has already been paid, often by the funder.
Where does the premium usually rank?: Often near the top, because the insurer wants to be paid from proceeds before they are distributed, and the funding agreement may list it with other costs ahead of the funder. Some agreements make the funder responsible for the premium out of its own return. The ranking decides who bears the premium in a modest recovery.
Can the premium be recovered from the losing side?: Generally not in England and Wales since LASPO 2012: section 58C of the Courts and Legal Services Act 1990, inserted by section 46, says a costs order 'may not include provision requiring the payment of an amount in respect of all or part of the premium,' except for prescribed clinical negligence expert-report cover. So the winning claimant's side bears the premium, from the recovery.
How large are premiums?: Large enough to matter. They are priced per case and commonly set as a percentage of the indemnity limit, sometimes staged so the rate rises as the case reaches later milestones. AltStreet's adverse costs insurance page uses an illustration of a deferred, contingent premium of 30% of a GBP 2 million limit. Burford notes adverse costs exposure 'could easily hit GBP 20 million' in multi-defendant antitrust matters, so limits, and premiums, scale with the case.
Who pays if the recovery is too small?: Whoever ranks below. If the premium ranks first, the funder and then the claimant absorb the shortfall; if it ranks after the funder, the claimant does. Some policies cap the contingent premium at a share of damages so a small win does not leave the claimant with nothing.
Does the funder's return apply to the premium?: If the funder pays it, often yes. An upfront premium paid by a funder is usually treated as deployed capital and earns the funder's multiple, so a GBP 50,000 upfront premium at 3.0x becomes a GBP 150,000 claim on proceeds. A deferred premium paid directly from proceeds does not.