In 2017, TheJudge launched an insurance product specifically designed for parties involved in cases where the loser may be subject to an adverse award of attorneys’ fees. For example, because the arbitration clause or applicable statutory regime provides for fee shifting.

This type of insurance is well-established in jurisdictions such as the UK where fee shifting is automatic in most cases.

While this Fee Shifting Insurance is relatively new to the US, we recently have seen a spike in applications for insurance in fee shifting in cases. As a result of the increased interest, we feel it is important to clarify how clients can use this product.

Case Study 1: Commercial Arbitration

A medium sized corporation intends to initiate an arbitration claim against a larger contractual conterparty related to an alleged breach of a supply agreement. The arbitration clause provides that the tribunal shall award attorneys’ fees to the prevailing party.

The claimant is comfortable with its own legal budget and confident in the strength of its claim but is concerned that if it is unsuccessful in its claims, it could incur a substantial liability to the opposing party’s attorney’s fees.

The claimant therefore takes out Fee Shifting Insurance to cover its potential risk with a maximum coverage limit of $2 million, meaning that if it is unsuccessful in the claim and the tribunal makes an adverse attorney fees’ award, it will be covered for this exposure up to a maximum of $2 million.

Case Study 2: Contingency Case with Potential Fee Shifting

A Florida-based law firm represents a plaintiff in an antitrust case on full contingency. The plaintiff wishes to pursue the claim, but its board is highly concerned about taking on any financial exposure in doing so. Whilst unlikely, there is some scope for a statutory fee shifting award and the attorneys must advise the client that there is at least some small risk that it could incur such a liability.

From a risk perspective, the law firm would be willing to indemnify the client for an unlikely adverse fee award. However, the Florida Rules of Professional Conduct prohibit lawyers from doing so.

However, the Rules do not prohibit a lawyer from paying the premiums on a policy insuring against such an award. The plaintiff therefore takes out insurance to cover the potential fee shifting exposure and the law firm covers the insurance premium as part of the case expenses.