Trending Now

The Impact of Insurance on the Litigation Finance Market

The Impact of Insurance on the Litigation Finance Market

The widespread adoption of insurance products within the litigation finance space has been one of the hot topics recently, as it opens the door to a range of opportunities for funders and LPs. IMN’s panel discussion on insurance explored how funders can use these products to lower their rates and hedge investments, the solutions available to de-risk and monetize litigation and arbitration, what is covered and how much coverage is needed, and more. The panel consisted of Brandon Deme, Co-Founder and Director at Factor Risk Management, Sarah Lieber, Managing Director and Co-Head of the Litigation Finance Group at Stifel, Megan Easley, Vice President of Contingent Risk Solutions at CAC Specialty, and Jason Bertoldi, Head of Contingent Risk Solutions at Willis Tower Watson. The panel was moderated by Stephen Davidson, Managing Director and Head of Litigation and Contingent Risk at Aon. The discussion began with the products on offer. Those include judgement preservation insurance (JPI), where a judgement has been reached and the client is looking to insure the core value of that judgement.  Insurers can also protect portfolios of judgements, or even pre-judgement, for example if there is a substantial amount of IP that is expected to generate value, that can also be insured. On the defense-side, clients can use products to insulate them from liability and ring-fence their exposure and damages. ATE is one of the earliest products available in the market—going on 20-25 years now. This applies to adverse costs regimes, which is a huge risk to third-party funders who have to assume that risk, given that they put up the capital. As a result, many funders are approaching insurers looking for ATE insurance.  Some less well-known reasons for procuring insurance include enabling one firm to purchase another firm’s docket, which makes the transaction more attractive to the purchasing party. There is also the opportunity to insure against the risk of a specific motion—in one example, Sarah Lieber of Stifel pointed to a case where the likelihood of a certain motion being adverse to the claimant was less than 1%, but the client wanted a ‘sleep well at night’ type of insurance. The insurer was thrilled to write it, obviously, and from the claimant’s perspective, it was a minimal capital output which protected against a low probability event that would have a devastating outcome if it came to fruition. The good news is that these policies are intended to be very straightforward. For example, JPI is supposed to be a math problem: at final adjudication of a case, you’re supposed to have X. If you don’t, insurance will cover a portion of the rest. Portfolio insurance will include a duration element, but it’s still relatively straightforward. This is not mortgage insurance—these agreements are 10 pages long. The policies are designed to be simple. Typically, the only exclusion is for fraud, as that is what insurers are most concerned about. Perhaps that is one reason they are so popular. Speaking on the London ATE market specifically, Brandon Deme, of Factor Risk Management noted, “The insurance market is expanding. We’ve got insurers that can go up to $25MM in one single investment. When you put that together with the six to seven insurers who are active in the space, you can insure over $100MM. And that wasn’t possible just a few years ago.” The discussion then turned to how we can engender more cooperation between insurers and litigation funders, given that the two parties are at odds on issues relating to disclosure and regulatory requirements. Jason Bertoldi of Willis Tower Watson noted that almost every carrier who offers this product will have some sort of interaction with funders, either directly or indirectly. And while there is opposition to litigation funding from insurers around frivolous litigation and ethical concerns, there are similarly concerns amongst insurers around adverse selection and information asymmetry. So the insurance industry has to get more comfortable with litigation finance, and vice versa. “The funders that we’ve worked with that have looked to insure their investments directly, they’ve been succeeded because by being very transparent in what they provide,” said Bertoldi. “And they’ve dedicated a lot of time to getting insurance done, making sure all litigation counsel is involved on the underwriting side. Doing that, and making sure all information is on a level playing field makes the process go a lot better.” Sarah Lieber took this opportunity to highlight the importance of treating an insurer as a valuable partner, rather than as a means of shifting risk. “We use insurance for financial structuring and accounting, more so than shifting risk,” Lieber noted, “because shifting risk—you’ll do that once, and you’ll never be a participant again in this market. Insurers aren’t stupid, if you give them a pile of crap, they’ll remember you for it.” Megan Easley CAC Specialty pointed out that capacity is a challenge on some risks right now.  The market caps out around $300-$400MM. And while it is very unlikely that there will be total loss risk, insurance in general is very conservative, so there is a gradual shift towards the idea of a total loss. Brandon Deme added that it’s about having the right capacity as well.  You want your insurer to pay the client if everything goes wrong. Some insurers go broke, so having the right capacity is key. One final point from Jason Bertoldi highlighted what he felt is the “most important, and perhaps most unexamined phenomenon happening in our industry,” which he believes is contingent risk. “A lot of carriers are dabbling in contingent risk, who aren’t super active in the space, and they are really trying to get involved,” Bertoldi explained. “Many carriers are hiring dedicated personnel to do contingent risk, because they have the appetite but not the expertise to handle that. That will change over the course of the year as new underwriters come into the space with a litigation background.” In the end, these are two markets—insurance and litigation finance—that must grow comfortable with one another. Insurers are looking for funders who want cheaper capital, or are looking to offload concentration risk, and must be assured that funders aren’t simply shifting the riskiest cases in their investment portfolio over to the insurance side of the equation. For more on insurance and litigation funding, register for our complimentary digital event: Litigation Finance and Legal Insurance. This hour-long, audio-only event will be held on Wednesday, June 14th at 11am ET, and will feature key stakeholders across the insurance space who will discuss the interplay of insurance and legal claims in greater detail. All registrants will receive a recording of the event as well.   *Editor’s Note: A previous version of this article suggested that Brandon Deme’s comment on the size of the Legal Insurance market was in relation to the US market, where there is over $750m in available insurance capacity across two to three dozen insurers.  Mr. Deme was speaking specifically to the London ATE market. That correction has been made. We regret the error. 

Commercial

View All

Life After PACCAR: What’s Next for Litigation Funding?

By John Freund |

In the wake of the UK Supreme Court’s landmark R (on the application of PACCAR Inc) v Competition Appeal Tribunal decision, which held that many common litigation funding agreements (LFAs) constituted damages-based agreements (DBAs) and were therefore unenforceable without complying with the Damages-Based Agreements Regulations, the litigation funding market has been in flux.

The ruling upended traditional third-party funding models in England & Wales and sparked a wide range of responses from funders, lawyers and policymakers addressing the uncertainty it created for access to justice and commercial claims. This Life After PACCAR piece brings together leading partners from around the industry to reflect on what has changed and where the market is headed.

An article in Law.com highlights how practitioners are navigating this “post-PACCAR” landscape. Contributors emphasise the significant disruption that followed the decision’s classification of LFAs as DBAs — disruption that forced funders and claimants to rethink pricing structures and contractual frameworks. They also explore recent case law that has begun to restore some stability, including appellate decisions affirming alternative fee structures that avoid the DBA label (such as multiple-of-investment returns) and the ongoing uncertainty pending legislative reform.

Discussion also centres on the UK government’s response: following the Civil Justice Council’s 2025 Final Report, momentum has built behind proposals to reverse the PACCAR effect through legislation and to adopt a light-touch regulatory regime for third-party funders.

Litigation Funding Founder Reflects on Building a New Platform

By John Freund |

A new interview offers a candid look at how litigation funding startups are being shaped by founders with deep experience inside the legal system. Speaking from the perspective of a former practicing litigator, Lauren Harrison, founder of Signal Peak Partners, describes how time spent in BigLaw provided a practical foundation for launching and operating a litigation finance business.

An article in Above the Law explains that Harrison views litigation funding as a natural extension of legal advocacy, rather than a purely financial exercise. Having worked closely with clients and trial teams, she argues that understanding litigation pressure points, timelines, and decision making dynamics is critical when evaluating cases for investment. This background allows funders to assess risk more realistically and communicate more effectively with law firms and claimholders.

The interview also touches on the operational realities of starting a litigation funding company from the ground up. Harrison discusses early challenges such as building trust in a competitive market, educating lawyers about non-recourse funding structures, and developing underwriting processes that balance speed with diligence. Transparency around pricing and alignment of incentives emerge as recurring themes, with Harrison emphasizing that long-term relationships matter more than short-term returns.

Another key takeaway is the importance of team composition. While legal expertise is essential, Harrison notes that successful platforms also require strong financial, operational, and compliance capabilities. Blending these skill sets, particularly at an early stage, is presented as one of the more difficult but necessary steps in scaling a sustainable funding business.

Australian High Court Limits Recovery of Litigation Funding Costs

By John Freund |

The High Court of Australia has delivered a significant decision clarifying the limits of recoverable damages in funded litigation, confirming that claimants cannot recover litigation funding commissions or fees as compensable loss, even where those costs materially reduce the net recovery.

Ashurst reports that the High Court rejected arguments that litigation funding costs should be treated as damages flowing from a defendant’s wrongdoing. The ruling arose from a shareholder class action in which claimants sought to recover the funding commission deducted from their settlement proceeds, contending that the costs were a foreseeable consequence of the underlying misconduct. The court disagreed, holding that litigation funding expenses are properly characterised as the price paid to pursue litigation, rather than loss caused by the defendant.

In reaching its decision, the High Court emphasised the distinction between harm suffered as a result of wrongful conduct and the commercial arrangements a claimant enters into to enforce their rights. While acknowledging that litigation funding is now a common and often necessary feature of large-scale litigation, the court concluded that this reality does not convert funding costs into recoverable damages. Allowing such recovery, the court reasoned, would represent an expansion of damages principles beyond established limits.

The decision provides welcome clarity for defendants facing funded claims, while reinforcing long-standing principles of Australian damages law. At the same time, it confirms that litigation funding costs remain a matter to be borne out of recoveries, subject to court approval regimes and regulatory oversight rather than being shifted onto defendants through damages awards.