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Maximizing Claimant Success: Harnessing the Synergy of Litigation Funding and Litigation Insurance

By John Freund |

“The emergence of legal insurance products has been a game changer in allowing both clients and law firms to lock in judgments, ring fence potentially deleterious outcomes, and provide for certainty where uncertainty used to be the rule.”

– Ross Weiner, Legal Director at Certum Group 

Uncertainties abound in today’s complex legal landscape, leaving individuals and businesses vulnerable to the high costs associated with legal disputes. A pair of innovative solutions–litigation funding and litigation insurance–have emerged as powerful tools that, when utilized in tandem, can offer peace of mind to those involved in legal proceedings.

In this article, we delve into the benefits inherent in synergizing these two forms of financial assistance, exploring the various types of litigation insurance, the individuals and entities that benefit from these products, and the numerous advantages they bring to the table. 

Types of Litigation Insurance Products

Below are popular forms of litigation insurance: 

  • After-the-Event (ATE) Insurance: ATE insurance policies are designed to protect litigants against the opposing side’s costs and expenses, should the claimants fail to win their case. It is typically purchased by plaintiffs, though some insurers do issue ATE insurance to defendants. These policies typically cover adverse costs, including the opponent’s legal fees and disbursements. ATE insurance is purchased after the event which prompts the claim, but before the legal proceeding initiates (the closer to the start of the proceeding, typically the more expensive ATE insurance becomes). As ATE insurance protects against an adverse costs award, it is not applicable in the United States, which does not have a cost-shifting regime in place (except in extremely rare circumstances). 
  • Before-the-Event (BTE) Insurance: BTE insurance, also known as legal expense insurance, offers coverage for potential legal costs before a dispute arises. This product provides coverage for legal expenses in various scenarios, such as personal injury claims or contract disputes. 
  • Judgement Preservation Insurance (JPI): JPI is exactly as it sounds–insurance that protects a claim or group of claims which have already received judgements. JPI is very straightforward, and essentially meant to be a math problem: If your judgment is X, and you receive Y, the insurer will cover the difference or a portion thereof. As such, documentation is minimal, with fraudulent activity being the primary exclusion inserted into the agreement.  According to Stephen Kyriacou, Jr., Managing Director and Senior Lawyer at Aon: “Judgment preservation insurance can be used for more than simply mitigating appellate risk. Judgment holders have used it to accelerate the recognition of judgment-related gains in their earnings, to monetize judgments while appeals are still pending, and even to convert more expensive unsecured debt into less expensive debt secured by the policy, since the policy effectively guarantees a minimum recovery so long as there is no collection or enforcement risk associated with the judgment.”
  • Litigation Funding Insurance: Litigation funding insurance is a specialized form of coverage designed to protect litigation funders, who provide financial support to claimants in exchange for a share of the proceeds, if the case is successful. This insurance safeguards funders against the risk of losing their investment in the event of an unsuccessful outcome. It provides critical protection against adverse cost orders and helps to minimize the financial risks associated with funding litigation. Stephen Kyriacou explains: “It has been a years-long challenge persuading certain insurers to consider insuring litigation finance-related risks, but we’ve seen recently that insurers have become much more willing to consider high-quality risks from funders when all parties work together to creatively structure coverage and properly align interests and incentives. As more insurers continue to come around to the idea of insuring funders over the coming years, the litigation and contingent risk insurance market will continue to grow, and even more value-creating solutions will become available to litigation finance firms.”
  • Portfolio Insurance: Portfolio insurance, also known as litigation risk portfolio insurance, is a comprehensive solution that covers multiple litigation cases within a portfolio. This type of insurance allows law firms, corporations, or litigation finance companies to spread the risk across a range of cases, reducing their exposure to any individual matter. Portfolio insurance offers cost predictability and stability, enabling stakeholders to manage their litigation risks more effectively and allocate resources strategically.

There have been other ancillary uses of insurance, such as when one firm looks to purchase the docket of another firm’s cases, or to insure a portfolio of IPs that have an associated value. As the Insurance and Litigation Funding industries continue to become intertwined, expect more bespoke products to emerge.  

Users of Litigation Insurance Products

There are three typical users of litigation insurance products: 

  • Individual Litigants: Individuals involved in legal disputes, such as personal injury claims or family law matters, can benefit from litigation insurance products. ATE and BTE insurance provide financial protection, enabling individuals who seek justice without the fear of exorbitant legal expenses.
  • Businesses and Corporations: Litigation can pose significant financial risks for businesses and corporations, diverting resources from core operations. Litigation insurance products help shield companies from the potentially crippling costs associated with commercial disputes, professional negligence claims, or intellectual property conflicts.
  • Law Firms: Law firms can also benefit from litigation insurance products. By offering these products to their clients, law firms enhance their value proposition, differentiate themselves in the market, and provide an additional layer of protection to their clients.

Benefits of Litigation Insurance Products

The benefits of utilizing litigation insurance are clear-cut: 

  • Cost Mitigation: Litigation insurance products alleviate the financial burden associated with legal disputes. They cover legal costs, including solicitor fees, expert witness expenses, court fees, and opponent’s costs, reducing the financial risks for litigants and providing access to justice for those who might not have the means otherwise.
  • Risk Management: Litigation is inherently uncertain, with outcomes dependent on various factors. Litigation insurance acts as a risk management tool, providing litigants with the confidence to pursue their case knowing that their financial interests are protected. It enables litigants to make informed decisions based on the merits of their case rather than financial constraints. 
  • Enhanced Negotiation Power: Litigation insurance empowers litigants during settlement negotiations. With insurance coverage in place, litigants can approach negotiations from a position of strength, knowing that they have the financial resources to endure protracted litigation. This can lead to more favorable settlement outcomes and increased bargaining power.
  • Access to Justice: Perhaps one of the most significant benefits of litigation insurance is its role in ensuring access to justice for individuals and businesses. By removing financial barriers, these products level the playing field and enable litigants to pursue their legal rights, even against well-funded opponents.

Litigation funders understand the ‘access to justice’ problem quite well. Litigation insurance further contributes to the democratization of our legal system by ensuring that even if the claim is unsuccessful, claimants are protected from the potentially crippling costs of litigation. This assurance encourages claimants who may be otherwise deterred by the financial risks associated with litigation to pursue their claims with confidence. Consequently, the collective impact of litigation funding and insurance is an increased participation of claimants, a broader range of cases being pursued, and a more inclusive legal system.

As Rebecca Berrebi, Founder and CEO of Avenue 33 points out, “The increased availability of insurance has enhanced the options available to claimants and law firms when it comes to protecting the downside of litigation. Only time will tell whether or not the litigation-focused products offerings will remain cost-effective additives to litigation finance.”

Litigation Funding & Litigation Insurance

Litigation insurance products have emerged as valuable tools in the legal landscape, offering financial protection and peace of mind to those navigating the complexities of litigation. Whether individuals seeking justice, businesses guarding against commercial risks, or law firms enhancing their service offerings, litigation insurance provides a range of benefits. 

Similarly, litigation funding affords plaintiffs the opportunity to see their case to fruition, when there might otherwise be no avenue for remuneration. By combining litigation funding and litigation insurance, claimants gain access to a tailored financial solution that meets their specific needs. Each claim has unique financial requirements, and the flexibility of these tools allows claimants to structure a financial package that aligns with their case’s dynamics. This synergy offers claimants the freedom to allocate capital as required, covering legal costs, expert fees, and other case-related expenses while safeguarding against the risk of adverse costs.

As the demand for these products continues to grow, they will mature into an integral part of the litigation landscape, empowering litigants and transforming the dynamics of legal proceedings for years to come. According to Boris Ziser, Partner and Co-Head of Finance and Derivatives at Schulte Roth and Zabel: “The growth of insurance products for the litigation funding space can be a real game changer, impacting not only the cost of capital, but expanding the universe of investors able to add this sector to their portfolios.”

By integrating these two solutions, claimants can significantly enhance their prospects for success while reducing financial risks. This harmonious approach not only levels the playing field between claimants and well-resourced opponents, but also promotes a fairer and more accessible legal system.

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Commercial Special Features

Key Highlights from the Inaugural LF Dealmakers European Edition

By John Freund |

Last week, the LFJ team attended the inaugural LF Dealmakers European Edition, held across two days at the Royal Lancaster in London. Building on the longstanding success of Dealmakers’ New York event, the first edition of the European conference brought together an impressive selection of leaders from across the industry.

Spread across two days, LF Dealmakers featured an agenda packed with insightful conversations between some of the most prominent thought leaders in the European litigation finance market. An array of panel discussions covered everything from the looming potential of regulation to the increasing corporate adoption of third-party funding, with these sessions bolstered by a keynote interview between two of the key figures in the Post Office Horizon litigation.

A long road to justice for the postmasters

In a conference that managed to fill every single panel discussion with speakers engaged in some of the largest and most influential funded disputes taking place in Europe, the standout session of the two days provided unparalleled insight into one of the most famous cases of recent years. The keynote interview on ‘The Future of Litigation Funding in the Wake of the Post Office Horizon Scandal’ saw James Hartley, Partner and National Head of Dispute Resolution Freeths, and Neil Purslow, Founder & CIO, Therium, offer up a behind-the-scenes tale of the sub-postmasters campaign for justice.

Going back to their first involvement with the case, James Hartley reminded attendees that whilst those looking at the case post-judgement “might think it was a slam dunk”, this was not the viewpoint of the lawyers and funders who first agreed to lead the fight against the Post Office. As Hartley described it, this was a situation where you had “a government owned entity who would fight to the end”, with a multitude of potential issues facing the claimants, including the existence of criminal convictions, the limited amounts of documented evidence, and the fact that the Post Office was the party that had ninety percent of the data, documents, and evidence.

Hartley also offered his own perspective on the legal strategy adopted by the Post Office and its lawyers, noting that at every stage of the litigation, “every single issue was fought hard.” He went on to explain that whilst he was “not critical” of the defendant’s strategy in principle, there remains the underlying issue that “the arguments they made were not consistent with the evidence we were seeing.” Hartley used this particular point to illuminate the issues around defendant strategies in the face of meritorious litigation that is being funded. He summarised the core issue by saying: “There is nothing wrong with fighting hard, but it’s got to be within the rules, and in a way that helps the court get to a just outcome.”

Offering praise for the support provided by Purslow and the team at Therium to finance the case, Hartley stated plainly that “without Therium’s funding it would not have gone anywhere, it would not have even got off the ground.” Both Purslow and Hartley also used the case to highlight problems around the lack of recoverability for funding costs and how that incentivises defendants such as the Post Office to prolong litigation and inflate legal costs. Hartley said that he would welcome a change to rules that would allow such recoverability, arguing that in this case “it would have neutralised the Post Office’s strategy to just keep driving up costs on the claimants side.”

What problem is regulation solving?

It was unsurprising to find that questions around the future of regulation for the litigation funding industry were a regular occurrence at LF Dealmakers, with the event taking place only a few days on from the House of Lords’ debate on the Litigation Funding Agreements (Enforceability) bill. From the opening panel to conversations held in networking breaks between sessions, speakers and attendees alike discussed the mounting pressure from government and corporate opponents of third-party funding.

The view from the majority of executives at the event seemed to revolve around one question, which was succinctly put by Ben Moss from Orchard Global: “What are the specific issues that require regulation, and what is the evidence to support those issues?”

This question became somewhat of a rallying cry throughout the conference, with suggestions of increased scrutiny and oversight being turned back on the industry’s critics who make claims of impropriety without citing evidence to back up these claims. Whilst several speakers referenced the recent LFJ poll that found a broad majority are open to the potential for new regulation, Ben Knowles from Clyde & Co described a lot of the discourse around the issue as “a fairly partisan debate.”

Among the few speakers in attendance who offered a contrasting view on regulation, Linklaters’ Harriet Ellis argued that “regulation done right would be good for the industry.” However, even Ellis acknowledged that any rules would have to be carefully crafted to provide a framework that would work across the wide variety of funded disputes, saying that a “one size fits all approach does raise issues.”

Regarding the government’s own approach to the issue through the draft legislation making its way through parliament, all of the executives in attendance praised lawmakers’ attempts to find a solution quickly. Alongside these government-led efforts, there was also a feeling among legal industry leaders that funders and law firms have to be part of the solution by promoting more education and understanding about how litigation finance works in practice. Richard Healey from Gately emphasised the need for firms to engage in “hearts and minds work” to change wider perceptions, whilst Harbour’s Maurice MacSweeney emphasised the need to “create the environment where law firms and funders can flourish.”

Innovation through collaboration

Outside of the narrow debate around legislation and regulation, much of the conference was focused on the speed at which litigation finance continues to evolve and create new solutions to meet complex demands from the legal industry. This was perhaps best represented in the way speakers from a variety of organisations discussed the need for a collaborative approach, with executives from funders, insurers, law firms, investors and brokers, all discussing how the industry can foster best working practices.

The interplay between the insurance and funding industry was one area that offered plenty of opportunity for insightful discussions around innovation. Andrew Mutter from CAC Speciality noted that even though “insurers are not known for being the fastest and moving the most nimbly,” within the world of litigation risk “the insurance markets are surprisingly innovative.” This idea of an agile and responsive insurance market was backed up by the variety of off the shelf and bespoke products that were discussed during the conference, from the staples of After-The-Event and Judgement Preservation Insurance to niche solutions like Arbitration Default Insurance.

Delving into the increasingly bespoke and tailored approach that insurers can take when working with funders and law firms, Jamie Molloy from Ignite Speciality Risk, described how there are now “very few limits on what can be done by litigation insurers to de-risk.” Whilst there is sometimes a perception that insurers are competing with funders and lawyers for client business, Tamar Katamade at Mosaic Insurance offered the view that it is “more like collaboration and synergy” where all these parties can work together “to help the claimant and improve their cost of capital and reduce duration risk.”

Class action fervour across Europe

Throughout both days of the LF Dealmakers conference, the volume and variety of class actions taking place across the European continent was another hot topic. However, in contrast to an event focused on the American litigation finance market, the common theme at last week’s forum was the wideranging differences between large group claims across individual European jurisdictions. In one of the most insightful panels, the audience were treated to an array of perspectives from thought leaders practicing across the UK, Spain, and the Netherlands.

The example of Spanish class actions provided an incredibly useful view into the nuances of European claims, as a country that is still in the process of implementing legislation to comply with the EU’s collective actions directive, but has already evolved routes for these types of actions over the last decade. Paul Hitchings of Hitchings & Co. described how the initiative to innovate has come “more from the private sector than the legislature”, with domestic law firms having become “experienced with running massive numbers of parallel claims” as an inefficient, yet workable solution. Hitchings contrasted Spain’s situation with its neighbouring jurisdiction of Portugal, which he argued has been comparatively forward thinking due to the country’s popular action law.

Speaking to the Dutch class actions environment, Quirijn Bongaerts from Birkway, argued that the “biggest game changer” in the country was the introduction of a real class actions regime in 2020. Bongaerts explained that the introduction of this system allowed for “one procedure that fits all types of claims”, which allows not only claims for damages, “but also works for more idealistic cases such as environmental cases and ESG cases.”

LFJ would like to extend our thanks to the entire Dealmakers team for hosting such an engaging and insightful event, which not only offered attendees a view into the latest developments in litigation finance, but also created a plethora of networking opportunities throughout both days. LFJ has no doubt that after the success of the inaugural LF Dealmakers European edition, a return to London in 2025 will cement the conference as a must-attend feature in the litigation funding events calendar.

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Commercial Regulatory Issues

The Dangers of Retrospective Legislation in Litigation Funding

By John Freund |

The debate around whether the Litigation Funding Agreements (Enforceability) Bill should be retrospective is a complex one, with valid arguments on both sides. A recent op-ed makes the case that retrospectivity poses significant dangers and unfairness.

Writing in LegalFutures, Jeremy Marshall, Chief Investment Officer of Winward UK, argues that the core issue is whether it is unfair to allow litigation funders to rely on contractual agreements that were freely entered into by both parties, even if those agreements were based on a mistake of law.

Marshall claims that the common law right to recover money paid under a mistake only applies when the mistake led to one party receiving an unintended benefit. In the case of litigation funding, the only benefit that has accrued is the one that was explicitly drafted into the contract. Allowing retrospectivity would open the door to satellite litigation and unreal counterfactuals, according to Marshall.

Claimants who have already received funding and won their cases are now arguing for the "right" to renegotiate and keep all the proceeds for themselves. But what about the funders' arguments that cases may have gone on longer or become more expensive than intended? Fairness demands that both sides' positions be considered.

Marshall insists that the true drawback in retrospectivity is the inherent danger of prejudicing one party to the exclusion of the other, or conferring an unexpected benefit to one party at the expense of the other. Ironically, this is precisely what those challenging the bill are attempting to do. So while the debate is a complex one, one can make a compelling case that retrospectivity in litigation funding poses significant dangers and unfairness.

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Commercial Regulatory Issues

The CJC’s Review of Litigation Funding Will Have Far-Reaching Effects

By John Freund |

The following is a contributed piece by Tom Webster, Chief Commercial Officer at Sentry Funding.

Reform is on its way for the UK’s litigation funding sector, with the Civil Justice Council firing the starting gun on its review of litigation funding on 23 April.

The advisory body set out the terms of reference for its review, commissioned by lord chancellor Alex Chalk, and revealed the members of its core working group.

The review is working to an ambitious timetable with the aim of publishing an interim report by this summer, and a full report by summer 2025. It will be based on the CJC’s function of making civil justice ‘more accessible, fair and efficient’.

The CJC said it will set out ‘clear recommendations’ for reform in some areas. This includes consideration of a number of issues that could prove very significant for funders and clients. These include:

  • Whether the sector should be regulated, and if so, how and by whom;
  • Whether funders’ returns should be subject to a cap; and if so, to what extent;
  • The relationship between third party funding and litigation costs;
  • The court’s role in controlling the conduct of funded litigation, including the protection of claimants and ‘the interaction between pre-action and post-commencement funding of disputes’;
  • Duties relating to the provision of funding, including potential conflicts of interest between funders, lawyers and clients;
  • Whether funding encourages ‘specific litigation behaviour’ such as collective action.

The review’s core working group will be co-chaired by CJC members Mr Justice Simon Picken, a Commercial Court judge, and barrister Dr John Sorabji. The four other members are:

  • High Court judge Mrs Justice Sara Cockerill, who was judge in charge of the commercial court 2020 – 2022, and who is currently involved in a project on third party funding for the European Law Institute;
  • Academic and former City lawyer Prof Chris Hodges, chair of independent body the Regulatory Horizons Council which was set up to ensure that UK regulation keeps pace with innovation;
  • Lucy Castledine, Director of Consumer Investments at the Financial Conduct Authority; and
  • Nick Bacon KC, a prominent barrister and funding expert who acts for both claimants and defendants

The CJC had said that it may also bring in a consumer representative, as well as a solicitor experienced in group litigation.

In a sign that the review seeks to be informed by a wide range of views, the CJC has also extended an invitation for experts to join a broader consultation group, which will directly inform the work of the review and provide a larger forum for expert discussion. Meanwhile the advisory body has said there will also be further chance ‘for all to engage formally with this review’ later this year.

Given the broad remit of the review and significant impact that its recommendations may have on the litigation funding industry, litigation funders, lawyers and clients would be well advised to make the most of these opportunities to contribute to the review.

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