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 are dependent 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 defined level of fee protection on contingent work. If a case is unsuccessful, or if recoveries fall short of the firm’s incurred fees on resolution, 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 the firm’s contingent fee position in the event of an adverse or underperforming outcome. That protection can also have secondary benefits. With insurance in place, firms may find it easier to secure credit facilities or other forms of financing. Conventional lenders are often reluctant to assess litigation risk directly, but an insurance-backed position can reduce uncertainty and improve lender confidence, sometimes on more favourable terms.

Cost is another key point of differentiation. Litigation funders typically require a substantial share of case proceeds to justify their risk. By contrast, insurers charge a premium that is generally linked to the limit of indemnity and, in many structures, payable only—or largely—upon a successful outcome. As a result, the overall economic cost to the firm is typically significantly lower than the effective cost of external litigation finance.

Although contingency fee insurance is not a new concept, it has only recently begun to receive broader attention among U.S. commercial litigators. Litigation funding often dominates industry discussion, yet only a relatively small proportion of commercial disputes are funded externally. Contingency fee insurance offers a more accessible and cost-effective way for firms to manage downside risk on matters they already control, without sacrificing a material share of the upside.

As firms continue to explore flexible fee models and respond to increasing client pressure around cost alignment, contingency fee insurance represents a practical and commercially sound risk management tool. For firms considering the product for the first time, an initial discussion with a specialist broker can provide valuable insight into available structures, indicative pricing, and how the cover might sit within the firm’s broader risk framework.

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