Litigation finance is key product for many entities that either do not have the necessary capital to finance their legal fees or do not wish to tie up their capital during the litigation. However, despite the advances made by the litigation finance market in recent years, the majority of corporate litigants still opt to finance litigation from their own balance sheets. Attorney Fee Insurance is a product specifically aimed with these plaintiffs in mind.
While litigation finance is an option, many such clients cannot justify the high success fees payable to funders or perhaps still simply find it an alien concept to have an external company financing their dispute. Attorney Fee Insurance bridges the gap.
Reimbursing the plaintiff’s fees and expenses incurred if the case loses
In today’s financial climate, most businesses are mindful of their legal spend. General Counsel and financial controllers still seek as much certainty as possible over their legal budget and risk exposure before deciding to file a suit.
Attorney Fee Insurance is a policy taken out by a plaintiff to provide coverage for the attorney fees and/or out of pocket costs they pay when pursuing a commercial dispute (litigation or arbitration). If the case is unsuccessful, the insurer reimburses the plaintiff for the insured legal fees and expenses up to the agreed budget.
The premium for Attorney Fee Insurance is often fully contingent upon success. This means that the client pays nothing to the insurer upfront and if the case is lost, the insurer receives no premium yet is liable to pay a claim.
When structured in this way, the premium typically costs less than one third of the return charged by litigation funders.
Put simply, for a client who has the means to carry the cash flow of their legal fees and costs, there is unlikely to be a more cost-effective solution to removing the litigation risk.
“Air Canada has its share of significant litigation matters that entail a high expenditure on fees and disbursements. While we have the ability to self-fund, in some circumstances we might prefer to hedge the economic risk of a negative outcome. In these situations, we find litigation insurance to be a very cost effective way of hedging our risk.”
– Air Canada
“The idea that corporate clients can now insure the fees and expenses they pay their attorneys, and in so doing share the risk with international insurers, is likely to be of real appeal to many GCs.”
– Jones Day
What’s the biggest and smallest coverage insurers will consider?
Because the insurers’ premium is significantly lower than the success fee charged by most litigation finance providers, the insurers can consider matters where the economics would not be viable for traditional litigation finance.
At TheJudge we arrange policies as low as $200,000 of coverage for legal fees and expenses. At the other end of the spectrum, the current largest policy we have placed for a single matter provided $40m of cover for legal fees and costs.
When can the client purchase attorney fee cover?
Most clients purchase cover at the outset of their case. However, it is possible to arrange cover at a later stage, if required. For some clients, it maybe that their case has become more protracted and costly than originally envisaged. For clients experiencing “litigation fatigue”, insurance can potentially be possible to not only insure the fees and expenses going forward, but also those already incurred.
“it’s particularly beneficial in circumstances where the legal budget has risen beyond initial expectations albeit for good reason. Being able to retrospectively insure the fees incurred gives in-house counsel extra flexibility and peace of mind…”
– Dechert LLP
What do insurers look for when considering a case?
Much like litigation finance companies, insurers will only be looking to support cases that they feel have a good chance of succeeding. That means cases with good legal merits, quantum and enforceability, although as noted above, insurers can often take on cases where the economics would not be viable for traditional litigation finance.
Can Attorney Fee Insurance be combined with Litigation Finance?
Yes. Attorney Fee Insurance can be used either as an alternative to or to compliment litigation finance. TheJudge specializes in structuring bespoke financing arrangements involving a combination of insurance and finance to optimize our clients’ risk / reward analysis and financial objectives.
Who are the insurers?
The insurers are all large international insurance companies rated “strong” or “excellent” by major ratings agencies.
Speak to us about your case(s)
If you have an existing or prospective case where you are contemplating a contingency fee arrangement and would like to understand what options might exist, contact us