Contingency Fee Insurance: A 101 Introduction for Commercial Litigators

How U.S. commercial dispute teams can de-risk contingency work without losing the upside

Contingency fee insurance is becoming an increasingly relevant tool for law firms seeking to manage financial exposure when acting under contingent or success-based fee arrangements. At its core, it is an insurance product designed to help firms balance capital risk where some or all of their fees depend on the outcome of a matter.

 The cover can be applied to a single case — such as a particularly large or high-stakes dispute or structured across a defined portfolio of matters. For law firm finance teams and internal risk committees, the attraction is clear: the insurance provides a minimum level of fee realization for contingent matters. If a case is unsuccessful, or if recoveries fall short of the firm’s incurred fees insured under the policy, the insurer indemnifies the firm for the shortfall, up to the policy’s agreed limit of indemnity.

 It is important to distinguish contingency fee insurance from traditional litigation funding. The insurer does not provide working capital during the life of the case. Instead, the policy operates as a financial backstop, protecting a portion of the firm’s incurred work-in-progress against the risk of an adverse or underperforming outcome.

 That protection can also deliver secondary benefits. With insurance in place, firms may find it easier to secure external credit facilities (if required), or to do so on more favourable terms.

 Although contingency fee insurance is not a new concept, it has only recently begun to receive broader attention among U.S. litigators. As firms continue to explore flexible fee models and respond to increasing client pressure around cost alignment, contingency fee insurance is an additional tool for litigators to consider when managing risk.

 For firms considering the product for the first time, an initial discussion with an insurance specialist can provide valuable insight into available structures and indicative pricing.

 TheJudge Group has arranged litigation and arbitration cost insurance solutions for more than 25 years and is the only broking group ranked Band 1 by Chambers & Partners UK every year since the litigation insurance broking category was established. For firms exploring contingency fee insurance, our team can advise on both individual case placements and portfolio structures, and on how different insurance options may be deployed in practice.