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The Impact of Insurance on the Litigation Finance Market

June 7, 2023

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. 

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Announcements Case Developments Commercial

High Court Refuses BHP Permission to Appeal Landmark Mariana Liability Judgment 

By John Freund |

Pogust Goodhead welcomes the decision of Mrs Justice O’Farrell DBE refusing BHP’s application for permission to appeal the High Court’s judgment on liability in the Mariana disaster litigation. The ruling marks a major step forward in the pursuit of justice for over 620,000 Brazilian claimants affected by the worst environmental disaster in the country’s history. 

The refusal leaves the High Court’s findings undisturbed at first instance: that BHP is liable under Brazilian law for its role in the catastrophic collapse of the Fundão dam in 2015. In a landmark ruling handed down last November, the Court found the collapse was caused by BHP’s negligence, imprudence and/or lack of skill, confirmed that all claimants are in time and stated that municipalities can pursue their claims in England. 

In today’s ruling, following the consequentials hearing held last December, the court concluded that BHP’s proposed grounds of appeal have “no real prospect of success”. 

In her judgment, Mrs Justice O’Farrell stated:  “In summary, despite the clear and careful submissions of Ms Fatima KC, leading counsel for the defendants, the appeal has no real prospect of success. There is no other compelling reason for the appeal to be heard. Although the Judgment may be of interest to other parties in other jurisdictions, it is a decision on issues of Brazilian law established as fact in this jurisdiction, together with factual and expert evidence. For the above reasons, permission to appeal is refused”. 

At the December hearing, the claimants - represented by Pogust Goodhead - argued that BHP’s application was an attempt to overturn detailed findings of fact reached after an extensive five-month trial, by recasting its disagreement with the outcome as alleged procedural flaws. The claimants submitted that appellate courts do not re-try factual findings and that BHP’s approach was, in substance, an attempt to secure a retrial. 

Today’s judgment confirmed that the liability judgment involved findings of Brazilian law as fact, based on extensive expert and factual evidence, and rejected the defendants’ arguments, who now have 28 days to apply to the Court of Appeal.  

Jonathan Wheeler, Partner at Pogust Goodhead and lead of the Mariana litigation, said:  “This is a major step forward. Today’s decision reinforces the strength and robustness of the High Court’s findings and brings hundreds of thousands of claimants a step closer to redress for the immense harm they have suffered.” 

“BHP’s application for permission to appeal shows it continues to treat this as a case to be managed, not a humanitarian and environmental disaster that demands a just outcome. Every further procedural manoeuvre brings more delay, more cost and more harm for people who have already waited more than a decade for proper compensation.” 

Mônica dos Santos, a resident of Bento Rodrigues (a district in Mariana) whose house was buried by the avalanche of tailings, commented:  "This is an important victory. Ten years have passed since the crime, and more than 80 residents of Bento Rodrigues have died without receiving their new homes. Hundreds of us have not received fair compensation for what we have been through. It is unacceptable that, after so much suffering and so many lives interrupted, the company is still trying to delay the process to escape its responsibility." 

Legal costs 

The Court confirmed that the claimants were the successful party and ordered the defendants to pay 90% of the claimants’ Stage 1 Trial costs, subject to detailed assessment, and to make a £43 million payment on account. The Court also made clear that the order relates to Stage 1 Trial costs only; broader case costs will depend on the ultimate outcome of the proceedings. 

The costs award reflects the scale and complexity of the Mariana case and the way PG has conducted this litigation for more than seven years on a no-win, no-fee basis - funding an unprecedented claimant cohort and extensive client-facing infrastructure in Brazil without charging clients. This recovery is separate from any damages award and does not reduce, replace or affect the compensation clients may ultimately receive. 

Case Developments Commercial

Homebuyers Prepare Competition Claims Against Major UK Housebuilders

By John Freund |

A group of UK homebuyers is preparing to bring competition law claims against some of the country’s largest housebuilders, alleging anti competitive conduct that inflated new home prices. The prospective litigation represents another significant test of collective redress mechanisms in the UK and is expected to rely heavily on third party funding to move forward.

An announcement from Hausfeld outlines plans for claims alleging that leading residential developers exchanged commercially sensitive information and coordinated conduct in a way that restricted competition in the housing market. The proposed claims follow an investigation by the UK competition regulator, which raised concerns about how housebuilders may have shared data on pricing, sales rates, and incentives through industry platforms. According to the claimant lawyers, this conduct may have reduced competitive pressure and led to higher prices for consumers.

The claims are being framed as follow on damages actions, allowing homebuyers to rely on regulatory findings as a foundation for civil recovery. The litigation is expected to target multiple large developers and could involve tens of thousands of affected purchasers, given the scale of the UK new build market during the relevant period. While damages per claimant may be relatively modest, the aggregate exposure could be substantial.

From a procedural perspective, the case highlights the continued evolution of collective competition claims in the UK. Bringing complex, multi defendant actions on behalf of large consumer groups requires significant upfront investment, both financially and operationally. Litigation funding is therefore likely to be central, covering legal fees, expert economic analysis, and the administration required to manage large claimant cohorts.

Case Developments Commercial

UK Court Approves Final Settlements in Car Delivery Charges Class Action

By John Freund |

Final settlements have been approved in a long running UK class action concerning allegedly excessive car delivery charges, bringing closure to a case that has been closely watched by the group litigation and litigation funding communities. The approval marks the end of proceedings brought on behalf of thousands of motorists who claimed they were overcharged by car manufacturers and dealers for vehicle delivery fees.

An article in Fleet News reports that the High Court has signed off on settlements resolving claims that delivery charges applied to new vehicles were inflated and not reflective of actual costs. The litigation alleged that consumers were systematically overcharged, with delivery fees presented as fixed and unavoidable despite wide variation in underlying logistics expenses. The case was pursued as a collective action, reflecting the growing use of group litigation structures in the UK consumer space.

The approved settlements provide compensation to eligible claimants and formally conclude a dispute that has been progressing for several years. While specific financial terms were not positioned as headline figures, the outcome underscores the practical realities of resolving complex, high volume consumer claims through negotiated settlements rather than trial. The court’s approval confirms that the agreements were considered fair and reasonable for class members, a key requirement in representative and opt out style actions.

The case also highlights the important role litigation funding continues to play in enabling large scale consumer claims to proceed. Claims involving relatively modest individual losses often depend on third party capital to cover legal costs, expert evidence, and administrative infrastructure. Without funding, such cases would typically be economically unviable despite their collective significance.