As recently reported in City A.M., an overwhelming majority of the UK’s most prominent law firms are now facing pressure from their existing and prospective clients to cut the costs of their services and make use of alternative billing arrangements.
This recent pressure no doubt arises principally from the continued financial fallout from the pandemic, but a major contributing factor is that clients have increased knowledge of the financing options that are available to them, which is driving competition amongst law firms in their attempts to attract new clients. Perhaps, unsurprisingly, law firms tend to focus on litigation funding when it comes to “alternative billing” with City A.M. reporting that 89% of law firm partners that took part in the poll said they intended to make use of litigation funding.
However, with the vast majority of law firms intending to make use of litigation funding, it might be fair to question exactly how “alternative” that strategy really is thought Litigation funding certainly offers great utility for clients unable to fund litigation, but it is also one of the most expensive means of financing litigation for a client, and may not have the desired effect of meeting the needs of every client if the client is more concerned with the overall costs of litigating rather than immediate cash flow. In many cases, the unsung hero of litigation finance – insurance, may actually be the better solution.
Beyond litigation funding and small headline discounts in charge-out rates
Litigation insurance remains an under-used resource for most claimants, with demand for insurance often limited to offering protection from adverse costs exposure and solving security for costs issues.
However, there are many other ways in which litigation insurance can be used to assist with a claimant’s own litigation costs, and also from a strategic law firm exposure perspective.
Own Side Fees Insurance – A must-know for lawyers acting for corporate claimants.
Own-side legal fee insurance has significant applicability to corporate claimants, who are keen to mitigate the risks of litigating but are not necessarily prepared for a litigation funder to share in a large portion of the claim proceeds. Ensuring the claimant’s own costs means the fees and expenses paid to external counsel are not lost if the case proves unsuccessful. Should the case lose, the insurer will reimburse the financial outlay. As with most litigation insurances, it is common for most of the premium to be charged on a contingent basis, meaning that the premium only becomes payable if and when there is a successful outcome in the case.
This form of insurance can be applied alongside a standard retainer, discounted fee or other alternative fee arrangements. Furthermore, with the unpredictability of legal budgets and cost overruns often being the norm, having such insurance in place can go some way to reducing sensitivities over billing. Indeed, it opens up further billing options, without the law firm taking on additional risks.
Contingency Fee Insurance (or DBA Insurance in the UK)
Interestingly, 80% of law firm partners that took part in the same poll were planning to offer various types of “no win, no fee” payment schemes in the next 18 months. However, many of those polled may not be aware that there is insurance cover available to help reduce the risk to law firms of taking such a risk.
Those law firms contemplating offering contingent fees/CFAs or DBAs for the first time should be aware that it may be possible to insure a portion of their risk exposure. By having an insurer underwrite a portion of the contingent WIP, the law firm can guarantee the firm will realise at least a portion of its fees on a given matter. So, the law firm benefits from the opportunity to attract work from prospective clients by offering contingent fees and reducing or eliminating hourly rates for the client, and also getting a potential uplift on their fees or percentage of the award, without having to bear all the risk should the case lose. Like the own side’s fee insurance mentioned above, the premium payable to insurers is usually wholly or largely contingent upon success.
If UK law firms are coming under increasing pressure from clients to explore alternative billing arrangements, it would no doubt assist them to be able to discuss true “alternative” options to differentiate themselves from competitors – rather than relying solely on litigation funding as a ‘one size fits all’ solution.
If you have a case where you would like to explore the options available or to learn more generally, please contact:
Robert Warner Emily Thomas