Another Sign of the Growing Acceptance of Litigation Finance

Litigation finance is a growing business because parties with valuable claims but without deep pockets need ways to pay the ever-increasing costs of litigation.  In a real sense, the burgeoning demand for alternative forms of financing will make it harder and harder for courts and legislatures to prohibit such alternative financing.  A recent initiative in the United States by a British company provides further proof of the increasing demand for new ways to finance litigation costs.

The British company is TheJudge Group Holdings, Ltd, and its initiative involves the sale of litigation insurance for plaintiffs.  This form of insurance is popular in Europe and is gaining acceptance.  TheJudge is betting that its popular will cross the Atlantic as well.

In litigation insurance, a party with a pending litigation matter – or the attorney for such a party – purchases a policy that promises to pay somewhere between 40 to 70 per cent of attorneys fees.  The litigant pays the fees and costs as the case progresses.  If the litigant prevails in the case, it will bear its own costs and pay a premium to the insurer.  If the litigant loses the case, the insurer reimburses the agreed-upon portion of the fees and costs.

As one litigation insurance executive has noted, “[t]he insurer is taking a similar bet to the bet the litigation funder is taking,” Blick said. “If the insured case is unsuccessful, the insurer pays out a substantial sum of money and collects no premium. If the insured litigation is successful, the insurer will pay out zero and will be entitled to a premium.”  The principal difference with litigation finance is that litigation insurance will not cover all fees and costs, even when the premium pays out.

Given these differences, litigation insurance obviously fills a different market niche than litigation finance.  In particular, it provides a substantially smaller hedge against the risks of litigation.  But as the market for alternative litigation financing expands, and the varieties of alternatives increase, it will become more difficult to stop any of those alternatives.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, litigation insurance

 Works Cited: Ray Strom, Litigation Finance, Sure. Litigation Insurance? U.K. Broker Sees U.S. Sales, The American Lawer (June 14, 2017) available at http://www.americanlawyer.com/id=1202789743668/Litigation-Finance-Sure-Litigation-Insurance-UK-Broker-Seeks-US-Sales