In recent years, litigation costs of large commercial legal disputes have been increasing quickly. Since 2008, billing rates at top law firms have increased 3-4% per year and the average rate for top partners now sits at $875/hr. Additionally, the costs of other related litigation components spiral upward, including expert witnesses, travel, and cross-border depos and electronic discovery. With this backdrop of relentlessly increasing litigation costs, the advantages of a well-financed plaintiff are clear.
Large corporate defendants will often be willing to expend significant resources to win case dismissal or force an unfavorable settlement. Without adequate financing, or as discussed further, insurance, a plaintiff has expensive choices to make throughout the litigation.
A well-financed or insured plaintiff will ensure that a well-thought-out case strategy is developed, that pre-trial pleadings are aggressive and complete and that discovery including both depositions and document review are extensive. Such a strategy maximizes the chances of success but requires significant resources.
In this context, a plaintiff can use two separate litigation finance products to level the playing field and improve his or her chances of eventual recovery. First is the more well-known litigation finance arrangement.
Alternatively, or sometimes in conjunction with direct funding, plaintiffs can utilize litigation insurance. While a new concept to many US attorneys, Litigation Insurance has been actively used in thousands of commercial cases in Europe over the past decade.
Litigation Insurance is a policy taken out by a plaintiff to provide an indemnity for the fees and/or costs of 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 cover can be structured in different ways, but a common structure is for payment of the premium to be contingent upon success in the case, meaning that the policyholder does not pay a premium upfront and only pays the premium if they win the case (typically from the damages or settlement obtained). Structured in this way, the premium is usually a fraction of what a litigation funder would charge for providing an equivalent amount of capital, given that the insurer does not have cash out for the life of the case. As a result, insurers can consider matters where the economics are not viable for traditional litigation finance.
Applications for Insurance are generally made at the outset of the case; however, it is possible to secure cover at a more advanced stage in the proceedings, and with the potential to retrospectively insure fees and expenses already incurred. This can be useful for corporate claimants experiencing ‘litigation fatigue’ or ‘fee fatigue’, particularly in cases which may have run on longer than originally envisaged or gone over budget.
The ability to match the defendant’s expenditures at every stage of the litigation process is critical. Accordingly, the judicious use of litigation finance and/or insurance can provide strategic capital to plaintiffs as they pursue meritorious claims, greatly increasing the likelihood of a successful outcome.
Vice President and General Counsel
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