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Key Takeaways from LFJ’s Virtual Town Hall: Spotlight on Insurance

By John Freund |

On September 26th, LFJ hosted a virtual town hall titled “Spotlight on Insurance.” The panel discussion featured David Kerstein (DK), Founder and Managing Director at Arcadia Finance, Michael Perich (MP), Director, Head of Litigation Insurance at Lockton Companies, Steve Jones (SJ), Managing Director, M&A, Litigation and Tax Practice at Gallagher, and Jeremy Marshall, Chief Investment Officer and Managing Director, Winward U.K. Limited. The panel was moderated by Jim Batson (JB), Chief Operating Officer at Westfleet Advisors.

Below are some key takeaways from the event:

JB: As Arcadia is a relatively new player in the litigation finance space, how has Arcadia incorporated insurance products into your underwriting and claims selection processes?

DK: As we were raising capital earlier this year, we explored using insurance to wrap a future portfolio, to potentially help drive fundraising and lower cost of capital. We weren’t able to do that as a first-time manager, but it’s something we’d like to explore in the future. We’re currently exploring traditional insurance products like JPI, and wrapping portfolios that may be on the edge of our mandate, and wrapping them in insurance would help us get to ‘yes.’

JB: So wrapping portfolios will help you look at some deals you might not otherwise consider?

DK: Exactly.

JB: Steve, can you give us an overview of the current Legal Insurance market? Especially focusing on recent developments in Capital Protection Insurance.

SJ: At the moment, I’m seeing a lot of innovation, so it seems like no two deals are the same, as there is a lot of creativity to get deals done. Very high submission rates, which probably suggests that knowledge of the products is increasing. And I see insurers and funders collaborating. It’s very seldom we see funders approach portfolio deals without thinking of insurance, and capital protection insurance (CPI) is the most obvious example of that. The net result of all of that is increased choice for clients, which I think we can all agree is a good thing.

JB: Jeremy, how do you view the relationship between funders and insurers? Some have thought of insurers as competitors to litigation funders – an example is in the appeal context, where the client has the option of taking funding and de-risking immediately, or taking insurance and de-risking at conclusion of the matter. How do you see the relationship between insurers and funders evolving?

JM: I view it very much as a collaborative venture, for at least two specific reasons: One is the competition appeal tribunal (CAT) in the UK. You couldn’t go into the CAT without the support of the insurers. And that morphs into the concept of co-funding, which is growing. And you wouldn’t be able to do this without insurers, particularly when you’ve got a policy with an insurer and you’re invited to participate with somebody else, it might be syndicated with more than one funder– all the insurers are going to have positions in relation to that and you’re not going to get it off the ground without the insurers involved. It really is a team effort, as cases have lots of ups and downs.

Without a good relationship with an insurer, you’re not going to get off the ground. And particularly in a client-facing situation, you want insurers and funders to be speaking with the same voice, and often you’ll see in points of tension where clients and law firms sometimes, will try to play the ‘divide and rule game’ with insurers and funders. And we need to speak with a unified voice if we can. And I think that will grow in time, where insurers will play a bigger role in both the front and back end of a transaction.

JB: Michael, from your perspective, what are you seeing as the most interesting trends in terms of the intersection of insurance and litigation funding?

MP: Litigation insurance has been in the transaction space for quite a long time. What we’ve been seeing lately is a substantial uptick in deal flow based on increased awareness and knowledge of the product base. Some of that deal flow are things that are not insurable (in the US market) – things like portfolios of personal injury or mass tort cases. Those won’t be insurable in the US. But we’re seeing more IP and antitrust cases, and more interest around building a sustainable market that involves portfolio risks and complex pieces of commercial litigation that helps make a more efficient transaction for everybody. And that’s where all of the parties are getting more aligned. So over the past six months, we’ve been noticing a lot more collaboration and innovation lately, which is a good thing.

For the full panel discussion, please click here.

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John Freund

John Freund

Commercial

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Commercial Regulatory Issues

Who Could Regulate the Litigation Funding Industry after the CJC Review?

By Harry Moran |

As funders and law firms await the outcome of the Civil Justice Council’s (CJC) review of litigation funding later this summer, industry experts are opining not only on the potential direction any future regulation could take, but what body would be in charge of this new oversight function.

In an insights post from Shepherd and Wedderburn, Ben Pilbrow looks ahead to the CJC review of litigation funding and poses the question that if some form of regulation is inevitable, who will act as the regulator for these new rules? Drawing upon two previous reports that reviewed the funding of litigation, Pilbrow points out that historically there have been two main bodies identified as the likely venues for regulation of third-party funding: the courts or the Financial Conduct Authority (FCA).

Analysing the comparative pros and cons of these institutions as prospective regulators, Pilbrow highlights that each one has two core contrasting qualities. The courts have the requisite expertise and connection to litigation funding yet lacks ‘material inquisitive powers’. On the other hand, the FCA does not have the aforementioned ‘inherent connection to the disputes ecosystem’, but benefits from being an established regulator ‘with considerable enforcement powers’.

Exploring options outside of these two more obvious candidates, Pilbrow suggests that utilising one of the existing legal regulators may be viable due to the fact they are all ‘largely staffed by lawyers but have regulatory powers.’ However, Pilbrow notes that these legal regulators may have common flaw that would stop them taking on this new role. That flaw being the comparatively small size of these organisations, with the Solicitors Regulation Authority (SRA) still only boasting 750 employees despite being the largest of these legal regulators.

Concluding his analysis, Pilbrow suggests unless the government opts for an expanded system of self-regulation under an industry body such as the Association of Litigation Funders, the most likely outcome is for the FCA’s remit to be expanded to include the regulation of litigation funding.

The full article from Ben Pilbrow can be read on Shepherd and Wedderbun’s website.

Commercial Deals

Omni Bridgeway Announces Final Payment for Acquisition of its Europe Business

By Harry Moran |

In an announcement posted on the ASX, Omni Bridgeway announced that it had completed the final payment for the acquisition of the Omni Bridgeway Europe (OBE) business that took place in 2019. The litigation funder confirmed that 5,213,450 fully paid ordinary shares had been ‘issued in satisfaction of the fifth and final tranche of variable deferred consideration’ to complete the acquisition.

Highlighting the progress of the business over the past six years, Omni Bridgeway said that the European business ‘has been successfully integrated into the global operations of the group, creating the most diversified legal asset management platform globally, covering all relevant civil and common law jurisdictions and all relevant areas of law.’ 

The announcement also revealed that OBE has ‘achieved the defined five-year KPIs in full’, whilst the management team ‘has been fully retained.’

Commercial Deals

Burford Capital CEO Says Litigation Finance Market is ‘Booming’

By Harry Moran |

With the global economy and financial markets in a current state of uncertainty, the stability of litigation funding as an uncorrelated asset class for investors is attracting wider attention than ever.

In an interview with Bloomberg TV, Christopher Bogart, CEO of Burford Capital discussed the current state of the litigation finance market, explained why third-party funding is attractive to clients and investors alike, and addressed the common critiques that are levelled at the industry.

On the enduring appeal of litigation funding to corporate clients, Bogart said that for many CEOs and CFOs the truth is that their companies are “spending too much money today on legal fees”. He went on to say that money spent by companies on legal fees is “not doing anything that advances their core undertaking”, and as a result, “the ability to offload that to somebody like us [Burford] is very valuable.”

When asked about why the litigation finance market is thriving during the global economic uncertainty, Bogart highlighted that all of Burford’s “cash flows come entirely out of the outcome of litigation results and those are independent of what’s happening in the market, independent of what’s happening in the broader economy.” In terms of the future of litigation funding and the potential for the market to continue to grow, Bogart pointed out that between legal fees and litigation judgments there is a “multi-trillion dollar a year global market” and that whilst the industry is already “booming”,  there is still “a lot of room to run here” for litigation funders.

In response to a question on the criticisms of litigation funding and the suggestion that funders may look to prolong the duration of cases, Bogart pointed out that Burford is just like any other investment firm that is “looking for high quality assets that are going to produce a reasonable return in a short period of time.” Bogart emphatically rejected what he described as “false concerns” by opponents of third-party funding, and stated plainly: “we’re absolutely not in the business of being interested in prolonging duration or in bringing forward things that are not ultimately going to yield a good result for our shareholders”.

The full interview can be found on Burford Capital’s website.