It’s well known that information loses its attorney-client privilege when shared with a third party. Increasingly, however, rulings are allowing for documents and exchanges shared with third-party legal funders to be protected.
An Overview of Insurance-Backed Litigation Funding
In a contributed article to Law360, Bob Koneck, Chris Le Neve Foster and Richard Butters from specialist insurance broker Atlantic Global Risk, discuss an innovative model for litigation finance. The authors explain that this new model, which they describe as ‘insurance-backed litigation funding’, is differentiated from traditional approaches to litigation funding through ‘the pricing and the parties’.
Expounding upon this idea, the authors detail how the structure of insurance-backed funding arrangements differ, with the law firm or client first securing an insurance policy to cover a minimum amount of recovery before non-recourse capital is secured to finance the litigation itself. This funding arrangement means that the capital will be repaid by two separate sources: the damages from the case and the ‘the proceeds of the insurance policy that will pay out if the financed litigation yields a monetary recovery insufficient to repay the funder.’
The authors further explain that using this model in cases where the claimant is unsuccessful, ‘the loss triggers a payout under the insurance policy that repays the funders their deployed capital and, depending on the structure of the financing, some or all of the funders' accrued but unpaid interest.’
As for the relative pros and cons of adopting an insurance-backed approach, the authors argue that this model is ‘usually cheaper’, due to the fact that it allows ‘insurance-backed funders to price their capital using an interest rate, without any right to the remaining upside in the litigation.’ On the other hand, insurance-backed funding creates an ‘enhanced execution risk’, as the increase in the number of parties involved in closing any funding arrangement can ‘slow or complicated the process.’
The full article, which explains the different aspects of insurance-backed litigation funding and the process for acquiring it, can be read here.