Litigation buy out insurance is an insurance strategy for litigation whereby a client can be isolated from the inherent uncertainties involved in the sale of a company. The sale of a company can easily be disrupted by the threat or existence of legal proceedings against the company. Legal proceedings involve the liability of paying out both damages and legal costs. This may cause the buyer to demand some concession on sale terms, to require onerous warranties or to withhold part of the price until the litigation is resolved or the threat disappears.
Litigaion buy out insurance enables the sellers to pass the litigation risk onto an insurer. This enables them to effectively ring-fence their litigation exposure, with the full financial risk of any litigation passed on to the insurer. This means the sellers are able to provide the comfort the buyers need to drop or dilute any demands.
– the defendant’s (or potential defendant’s) exposure to damages,
– defence costs
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