A Damages-Based Agreement (DBA) is a contingency fee arrangement between a client and their legal representative under which the representative's fee is calculated as a percentage of the financial benefit the client recovers. DBAs are one of the funding routes available to a claimant bringing a professional negligence claim, and they change the economics of how such claims are pursued and settled. For a professional facing a claim, the claimant's use of a DBA does not alter the primary cover position under the professional indemnity policy — but it does affect settlement dynamics, reserve setting, and the way the claimant's expectations are framed.
DBAs sit on a statutory footing at section 58AA of the Courts and Legal Services Act 1990, as inserted by section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Before LASPO commenced on 1 April 2013, contingency fees in contentious work were generally unenforceable outside employment tribunals. LASPO extended the statutory permission to civil litigation alongside wider changes to conditional fee agreements and after-the-event insurance.
The detailed rules are set out in the Damages-Based Agreements Regulations 2013 (SI 2013/609). Two features matter most. First, the regulations cap the percentage the representative may take from the sum recovered. In commercial and other civil (non-employment, non-personal-injury) matters the cap is 50 per cent of the sums ultimately recovered by the client, inclusive of VAT and counsel's fees. In employment matters the cap is 25 per cent. Personal injury DBAs sit under a separate 25 per cent cap on general damages and past pecuniary loss. Second, the regulations set out mandatory content for the written agreement itself, including the claim to which it relates, the circumstances in which the payment is to be made, the reason for setting the percentage at the level chosen, and the payment terms.
The 2013 Regulations were widely criticised as unclear, and for several years practitioners debated whether a hybrid DBA — under which the solicitor took a percentage on success but was entitled to some hourly-rate payment if the claim failed — was permissible or void. The Court of Appeal addressed the point in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16. The court held that the 2013 Regulations do not prohibit terms dealing with what happens if the DBA is terminated before recovery, and that the regulations regulate payment out of recoveries rather than the whole retainer. The decision opened space for more flexible fee models while leaving the statutory cap in place on any percentage taken from recovered damages.
When a claimant brings a professional negligence claim against a surveyor, solicitor, accountant, architect, or other professional, the funding route the claimant chooses is a matter between the claimant and their own legal team. A DBA does not create a direct contractual relationship with the defendant professional or with the professional's PI insurer. The claimant's solicitor takes their agreed percentage of whatever the claimant recovers, whether by settlement or judgment. The defendant professional is not obliged to pay the claimant's DBA fee as such; the professional is obliged to pay the damages, and, where costs are recovered, whatever costs order is made or agreed.
The PI policy response follows the same logic. Most PI policies respond to the settlement or judgment amount and to the professional's own defence costs, subject to the limit of indemnity, the excess, and the policy conditions. The claimant's contingent fee to their own solicitor is a matter for the claimant to fund out of their recovery. The policy is not written to underwrite the claimant's funding choices.
A surveyor faces a professional negligence claim alleging a valuation error. The claimant instructs solicitors on a DBA at 30 per cent of sums recovered, within the 50 per cent commercial cap. After exchanges of expert evidence the claim is settled by negotiation at £400,000. The claimant's solicitor is entitled to 30 per cent of £400,000 — £120,000 — as the contingent fee under the DBA. The claimant nets £280,000 after paying that fee. The surveyor's PI policy responds to the £400,000 settlement and to the surveyor's defence costs, subject to the policy limit and excess. The claimant's DBA is a separate matter from the surveyor's cover; the insurer does not contribute to the £120,000 fee.
DBA-funded claimants tend to negotiate with a clear net-recovery figure in mind, because their solicitor's fee comes off the top of whatever is agreed. That can compress the settlement range or extend it, depending on whether the claimant will accept a lower gross figure that still delivers an acceptable net sum. Reserve setting, meanwhile, should not treat the claimant's DBA as a separate exposure — the professional's insurer is exposed to the damages and any inter-party costs order, not to the claimant's own contingent fee.
Further reading on funding, costs and PI response: surveyors' PI insurance, solicitors' PI insurance, accountants' PI insurance, Conditional fee agreements in PI claims, After-the-event insurance, Qualified one-way costs shifting, Part 36 offers.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.