Contingency fee insurance is considered by many law firms to be a potential gamechanger in terms of the use of contingency fee arrangements by commercial disputes resolution teams.
This specialist insurance, designed specifically for law firms, mitigates the financial risks inherent in contingency fee arrangements – i.e., the risk that the law firm will earn little or no income in the event of an unsuccessful litigation outcome.
Contingency fee insurance can reimburse generally up to 50% of legal fees incurred (measured at standard hourly rates) and up to 100% of litigation expenses in an unsuccessful litigation.
This insurance is available for matters taken on either full contingency and partial contingency fee arrangements, and may potentially insure both future and historic costs. Contingency fee insurance can place a floor on a law firm’s realization rate in contingency matters, effectively assuring at least a 50% realization rate even with a wholly unsuccessful full contingency matter, and higher assured realization rates for insured partial contingency matters.
Contingency fee insurance can sit alongside a third-party finance arrangement, or provide a cost-effective alternative for law firms with good liquidity that are seeking to manage the risks of taking matters on a contingency basis.
The insurers premium is only payable if a successful outcome is achieved. If the case is lost, discontinues or cannot be enforced, then the insurer receives no premium and is liable to pay a claim up to the limit of cover.
– Justin D’Agostino, Global Head of Practice, Herbert Smith Freehills
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