A Thomas Miller Company
The Judgment Preservation Insurance (“JPI”) insurance market has been a huge talking point in the last 12-18 months, but the reality is that JPI remains an emerging and under-utilised insurance product that is too often a secondary consideration to a litigation finance transaction.
At its core, JPI allows any party with a financial stake or interest in a dispute, and who has a first instance judgment or award in their favour, to insure all or part of that interest against the risk that it is reversed or reduced on appeal. That summary is deliberately broadly worded as, whilst the majority of publicly available content about JPI focuses on claimants/plaintiffs with judgments in their favour, the market is increasingly being driven by others with interests in awards, such as law firms acting on contingency arrangements, litigation funders with a financial stake in the position or investment funds where their interests are correlated to the outcome of a piece of litigation or arbitration.
Unlike many other forms of litigation insurance or finance, it’s an insurance cover with universal applicability for both claimants and defendants. For example, corporate defendants that have successfully defended a claim at first instance, yet face an appeal, can also explore cover to mitigate the risk of there being a reversal and ensuing damages award. A JPI policy could have immediate financial benefits for the company, by allowing existing claim reserve funds to be freed up and reallocated elsewhere.
Away from the issue of the depth of potential purchasers, there is also a question of in what scenarios JPI can benefit buyers. Aside from the obvious benefit of being able to crystalise an uncertain and illiquid asset (at least until such time as the appeal process is resolved), JPI is increasingly being utilised as a means of accessing alternative capital for a variety of benefits including the refinancing of existing litigation funding arrangements or to pay for the fees and costs to be incurred in defendant an appeal.
The first example – refinancing an existing litigation funding arrangement – is likely to be particularly attractive for almost all funded claimants/plaintiffs that have a first instance award in their favour. In most situations, the existence of an appeal is likely to defer the process of making recoveries from the dispute for 1-3 years. Given the way in which most litigation funding arrangements are structured, typically involving time-based multiples on the deployed capital that ratchet from the time of execution of the funding arrangement to repayment of funds, being able to refinance at a reduce go-forward rate could make good commercial sense.
In this scenario, JPI could be purchased and used to access alternative capital which can be used to pay the premium payable for the JPI policy, to repay or “cash out” an existing litigation funder to stop additional multiples accruing, as well as funding the fees/costs of defending the appeal. If the first instance decision is overturned or reduced on appeal, then the claimant/plaintiff claims on the JPI policy and uses the policy proceeds to repay the new capital provider (or in reality the lender would usually be secured on the policy and so paid out by the insurer). Conversely, if the first instance is upheld then the claimant/plaintiff uses the proceeds from the dispute to pay the new capital lender and has avoided the enhanced cost of additional multiples accruing under their previous funding arrangement.
This is just one example of endless creative scenarios in which JPI can be utilised but highlights the importance of litigators having sufficient knowledge of the existence and basic principles of the product to be able to put their clients in favourable positions.
As mentioned at the outset, the JPI market is still in the nascent phases of development and, whilst it has been a discussion point at many costs conferences of late, there are only a few with specialist knowledge in this area. As part of global insurance specialists, the Thomas Miller Group, TheJudge is one of those brokers at the forefront of the market, with engagements typically requiring JPI insurance in the $50m to $500m range for awards or judgments across Europe and the US.
