On the defense side, litigation, regulatory and other contingent risks can complicate or even derail M&A transactions, financings and investment rounds and can otherwise negatively impact business operations. Our litigation and contingent risk insurance solutions are designed to protect organizations that are defendants in active litigation or those that may become defendants in litigation at some point in the future from potential liabilities, ensuring financial stability and peace of mind.
On the plaintiff side, our insurance policies can guarantee, subject to minimal exclusions and conditions, a minimum return from:
- Judgments that are subject to appeal
- Arbitration awards that are subject to collection risk
- Plaintiff-side contingency fee-based cases brought by law firms
- Litigation-related investments and other legal assets
- Groups of plaintiff-side cases brought by a single litigant
- Patent portfolios that are the subject of IP litigation campaigns
At WTW, we help you navigate uncertainties with confidence by using tailored solutions that align with your distinct needs. Explore the benefits, features and reasons why our litigation and contingent risk insurance brokerage and advisory services are the right choice for you.
What is litigation and contingent risk insurance?
Litigation and contingent risk insurance encompasses several different insurance solutions for both defendants and plaintiffs in litigation, as well as law firms that operate on a contingency fee basis and other parties with an interest in plaintiff-side litigation.
Our solutions include:
AJI protects defendants in pending litigation, or parties that may become defendants in litigation at some point in the future, against the risk of a significant adverse judgment.
Private equity firms that want to buy target companies or sell portfolio companies that are defendants in significant litigation often use AJI to ring-fence the associated litigation risk and transfer it to the insurance markets, thereby avoiding or minimizing the need for a seller’s escrow. Companies that are seeking capital also use AJI to reassure potential investors or financing sources that active litigation against the company poses a minimal threat to their investment.
JPI protects plaintiffs that have won significant lower court judgments – or any other party with a monetary interest in such judgments – against the risk of reversal or damage award reductions in post-trial motions and appeal. JPI can also protect arbitration awards.
JPI policyholders can be the plaintiff that won a judgment or arbitration award, the law firm that represented the plaintiff on either full or partial contingency, any other party with a monetary interest in the judgment or arbitration award, or any combination of these parties. JPI can also be used to monetize judgments and arbitration awards at a much more attractive cost of capital than would otherwise be available without insurance through a process called insurance-backed financing.
JPI can also be purchased by defendants who have prevailed in lower court proceedings to protect against the risk that a reversal of that lower court win ultimately leads to them paying damages.
WIP insurance covers a law firm’s invested fees and case-related expenses on plaintiff-side contingency fee cases (which is known as a firm’s “work-in-progress” or “WIP”) when those cases are not as successful as expected, guaranteeing the firm a minimum fee recovery within the policy period.
These policies can help attract capital at a much lower cost than would be available without insurance and can be structured with either the law firm or the capital provider as the policyholder. Law firms can also use these policies simply to protect their downside, which can be helpful in getting firm management and other members of the partnership to approve taking on contingency fee cases, especially at law firms where revenue is primarily driven by the billable hour.
These policies insure a portfolio of diversified litigation-related assets, guaranteeing a minimum return from those assets within the policy period. These policies can also insure a loan made to a plaintiff-side contingency fee-based law firm where that loan is collateralized by a portfolio of cases being brought by the law firm.
Litigation and contingent risk insurance policies can also be customized to address unique portfolio-based litigation risks and exposures. These can include insuring multiple plaintiff-side lawsuits brought by a single litigant, patent portfolio acquisition and assertion campaigns, and even portfolios of defense-side litigation exposures.
AADI protects companies or investors that have won an investor-state arbitration against a respondent state’s failure to pay the award rendered against it. These policies can be purchased both pre-award (i.e., before there has been any indication that a respondent state will resist paying whatever award may ultimately be issued) and post-award (i.e., after the respondent state has already indicated an unwillingness to pay).
WTW’s Litigation and Contingent Risk Solutions team can remove asbestos, talc and other legacy, long-tail liabilities from clients’ books by facilitating transactions with acquisition counterparties that purchase “OldCo” entities containing (i) a company’s legacy liabilities, (ii) the company’s potentially responsive historical insurance coverage and (iii) a certain sum of cash.
The OldCo carries the liabilities on its books and the purchaser then takes over claim defense and administration, leaving behind a clean “NewCo” entity that contains the company’s other assets and that can be operated, bought or sold free and clear of the legacy liabilities left behind in the OldCo.
WTW manages the entire transaction process, including the creation of an asbestos liability forecast and insurance coverage analysis; marketing to, receiving bids from and negotiating terms with potential OldCo purchasers; and liaising with restructuring and tax counsel, solvency experts, and other professionals supporting the transaction. WTW keeps all aspects of the transaction process moving along multiple parallel tracks, with an eye toward expediency, minimizing costs, and, most importantly, helping ensure that the transaction as ultimately structured delivers the company true “walkaway” finality with respect to its legacy liabilities.”
Benefits of litigation and contingent risk insurance
Litigation and contingent risk insurance is a vital tool for businesses aiming to mitigate the financial uncertainty that can arise from litigation, regulatory and other similar risks, whether on the plaintiff side or the defense side. It can:
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Mitigate against risk
Our defense-side litigation and contingent risk insurance solutions offer you a safety net against litigation, regulatory exposures and other contingent liabilities, enabling you to confidently manage legal issues and other contingent risks. These types of coverage help you manage challenges without incurring major financial burdens. Our defense-side adverse judgment insurance solution may be available wherever three things are true:
- A piece of litigation is getting in the way of something that a business wants to do
- For whatever reason, the litigation cannot be settled, won on the merits or otherwise disposed of at present and
- We have access to enough information about the case right now to demonstrate to insurers why liability is highly unlikely, or why damages are highly unlikely to exceed a certain amount
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Facilitate M&A and other dealmaking activity
Adverse judgment insurance is often used in M&A. For example, a private equity firm that wants to buy a target company that is a defendant in a significant lawsuit but doesn’t want to take on the target company’s litigation exposure would typically require a seller’s escrow to cover potential damages in the litigation. But the seller may be unwilling to provide an escrow because it views the litigation as frivolous or thinks that the plaintiff is overreaching on damages, or because tying up funds in escrow simply throws off the economics of the transaction.
An AJI policy solves these problems because it effectively caps the target company’s potential future liability by providing coverage beyond a certain deductible or “retention.” With AJI, the M&A deal can close with a dramatically reduced seller’s escrow, or perhaps with a low-dollar-amount indemnity agreement or minor price adjustment.
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Lock in value
Our plaintiff-side litigation and contingent risk insurance solutions protect businesses – including law firms operating on a contingency fee basis and investors in litigation assets – from financial uncertainty by guaranteeing a minimum recovery from a favorable judgment that is being appealed, a favorable arbitration award that has yet to be confirmed or enforced, a group of plaintiff-side cases being brought by a law firm or a portfolio of diversified litigation-related assets. These solutions open a world of new opportunities by allowing:
- Judgment and award holders to monetize their judgments and awards at a highly attractive cost of capital
- Law firms to bring in lower-cost financing for their cases and operations
- Investors in litigation-related assets to bring in new, more traditionally risk-averse forms of investment capital
- All of these parties to simply minimize their downside risk
Why choose WTW for your litigation and contingent risk insurance needs?
WTW offers unparalleled expertise and experience in addressing your litigation, regulatory and other contingent risks, and provides tailored solutions to support your deal-making activities, risk management goals and more. With diverse backgrounds, we remain at the forefront of innovating new coverage structures and concepts to address our clients’ distinct risk management needs and goals. We continue to deliver best-in-class client service using our strong and longstanding relationships with underwriters in the litigation and contingent risk space.
Disclaimer
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
