Based in the Chrysler Building in New York and with offices opening in Los Angeles in a few weeks’ time, it’s our aim to deliver something new options, both for financially distressed litigants as well as corporate America. Indeed, it’s the “new” factor that has caught the eye of US legal press. Far from being yet another litigation fund press launch, we’re delivering something genuinely new to the US legal market.
In addition to our broking capabilities in securing the most competitive litigation finance arrangements, we’re introducing two very distinct insurance products, both with enormous application for the US legal market.
Attorney Fee Insurance.
By sharing their litigation cost risk with insurers, companies can protect themselves from unsuccessful (or less than successful based on the actual recovery) outcomes in their case. If a case loses or an award cannot be enforced, the company is reimbursed the legal fees and expenses they paid during the proceedings by their insurer. It’s of key significance that the premium can potentially be arranged on a contingent basis, meaning the premium is only payable if the case is successful. Furthermore, the cost of the insurance premium is usually less than a third of the cost of litigation finance details.
So, for those plaintiffs that self-finance their legal cases (i.e. the majority of big business), insurance is not only an economic hedge for the occasional case, it’s potentially has mass market application. All US attorneys ought to now advise their fee-paying clients that they could potentially insure the legal fees and expenses the client pays. We predict that, attorney fee insurance could be set to dwarf the volume of litigation finance deals entered into by medium to large sized enterprises.
Another key benefit of attorney fee cover is that while insurers can insure the cost exposures in big ticket disputes, they also have the capability, and crucially the appetite, to insure smaller risks too. Many litigation funders require the cost v damages ratio to be at least 1:10 (albeit the requirement varies) and most will insist on a minimum funding commitment of $1m, which means the case must have a realistic settlement value of at least $10m. However, because insurers’ premiums cost significantly less than funders’ success fees, an insurer can potentially insure a case with a cost to damages ratio as low as 1:3. Furthermore, our insurers are willing to insure cost budgets as low as $250,000. This creates another mass market opportunity in the US currently and largely overlooked by the litigation finance sector.
Contingency Fee Insurance
While attorney fee insurance is a key new market entrants for private fee paying clients in the US, Contingency Fee Insurance, addresses another key market sector.
Contingency fee insurance is the US equivalent to our recently launched DBA Insurance product in the UK. This product is specifically designed to enable law firms to hedge their risk exposure when offering contingency fee retainers. Cited as being: “the missing piece of the pricing jigsaw. It could be one of the most significant industry developments since the introduction of the funding market.” (Herbert Smith Freehills), it’s a product being met with enormous enthusiasm by US law firms.
In today’s marketplace, most AM Law 100 firms will have at least a few matters they are running on a contingency basis (whether in full or part). Some AM Law 100 firms are even taking an aggressive position in using such retainers as means to develop market share.
For the right cases, a contingency fee arrangement could prove an extremely lucrative fee arrangement for the law firm (see the Texas Lawyer article: Revenue, Profits Soar at Baker Botts Amid Contingency Wins). When considered against the backdrop of a competitive legal market where clients are increasingly chiselling away at lawyers’ charge out rates, insisting on ever increasing discounts or fixed fee arrangements, few firms can ignore the changing landscape and so need to adapt and find new ways to boost revenues.
The problem, however, is that law firms are not natural risk takers. So, while the large financial rewards are attractive it’s often more than offset against the fear of losing. Contingency fee insurance addresses that issue. By insuring a portion of the fee risk the law firm takes when acting on a contingency fee, the law firm is guaranteeing that it will be paid a reasonable share of its budget, win or lose. Contingency fee insurance “allows law firms to develop their contingency portfolio in a controlled manner.” Jones Day
James Blick, Director at TheJudge and based in our soon to be opened Los Angeles office, summarises our US aspiration:
“When combined with our extensive litigation finance capabilities (working with over 20 funders globally), the introduction of attorney fee insurance and contingency fee insurance in the US market, we hope puts TheJudge in the unique position of being the obvious port of call for US law firms and plaintiffs alike who want to consider all their options and maximise their financial returns.”
Do you have US colleagues that you believe need to be aware of these developments? Please feel free to make an introduction. We’d be delighted to set up a joint call Contact us [here]