Building on the earlier fireside chat about ATE Insurance, IMN’s conference began its afternoon agenda with a panel exploring the broader impact of insurance on the litigation funding market.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Building on the earlier fireside chat about ATE Insurance, IMN’s conference began its afternoon agenda with a panel exploring the broader impact of insurance on the litigation funding market.
The panel was moderated by Steve Jones, Executive Director & Joint Practice Head at Gallagher, and the panelists included: Robin Ganguly, Executive Director for UK & EMEA at Aon, Carlos Ara, Equity Partner at Cuatrecasas, Mohsin Patel, Co-Founder & Director of Factor Risk Management Ltd and Rocco Pirozzolo, Underwriting Director at Harbour Underwriting.
The panel began with an overview by Rocco Pirozzolo on the ways in which insurance providers have innovated to meet the needs of funders, as the capacity required for these cases has continually increased. In particular, he focused in on Security for Costs cover, which has been designed to combat defendants’ use of this mechanism as a stalling tactic. Pirozzolo explained that this can come in the form of an anti-avoidance endorsement or deed of indemnity. As a result, Pirozzolo argued, these tactics force defendants to instead look at the merits of the case and often settle.
Mohsin Patel addressed the market growth which has seen the volume and scale of requirements for insurers increase. As a result, some industry leaders are looking to co-insuring arrangements and therefore, the importance of brokers has also grown, as they can help reduce that ‘transactional angst’. Patel also highlighted the utility of Capital Protection Insurance (CPI), which can allow a funder to remove the downside risk of losing a claim in exchange for a lower potential return. Patel argued that CPI can make a broader range of cases financially viable, thereby benefitting both funders and lawyers.
Moving from single-case to portfolio insurance, Robin Ganguly examined the ways in which insurers will assess the risks of different types of portfolios. For those with existing historic cases to be insured, insurers can tailor a policy for a secondary market sale based on factors including case duration and funder involvement. For those empty or forward looking portfolios, it is the funder’s track record that the insurers are underwriting. Ganguly also stressed that insurers can put limits on policies for these portfolios including case type and size, jurisdiction of cases, and can even mandate insurer approval of individual cases.
Carlos Ara agreed with the panel that the evolving market is experiencing a wider breadth of investors, and that this has also opened the way for insurance policies that can be taken out after the initial investment, or in cases where secondary market transactions are possible. Ara also raised the suggestion of greater collaboration between funders and insurers, with opportunities for them to collaborate on the creation of new products for clients.
Mr Pirozzolo also covered the cases of defendants taking ATE insurance policies. He explained that this was a less common occurrence, in part because it is much more difficult for a defendant to define what would count as a win. Outcomes are clear when the claim is dropped or the defendant is successful at trial, but other degrees of success make it harder for insurers to offer the right cover for a defendant. Pirozzolo did raise the very rare example where insurance can be provided, which only kicks in if the case goes to trial, but in his own words, ‘it’s jolly hard to do’.
