The value of litigation insurance, and the natural pairing of this coverage with litigation funding, is often highlighted as one of the core strengths of the current litigation environment. However, a significant reversal of a $1.6 billion judgement has shown that insurers must carefully balance the risks of uncertain outcomes when providing judgement preservation insurance.

Reporting by Bloomberg Law covers the ongoing impact of the decision by the US Court of Appeals for the Fifth Circuit to overturn a $1.6 billion judgement against IBM, which has left Liberty Mutual facing up to $150 million in coverage for judgement preservation insurance it provided. According to Bloomberg’s sources, Liberty Mutual has since withdrawn from “at least two potential litigation insurance deals” since the appeals court’s ruling. The $1.6 billion judgement was reportedly insured by a group of insurers to cover between $500 million and $750 million, with Liberty alone having covered between $100 million and $150 million.

Richard Angevine, a spokesperson for the insurer, said: “Liberty Mutual Insurance does not publicly discuss individual commercial insurance customers.”

Speaking to Bloomberg Law about the broader impact of this type of judgement on the litigation insurance market, Jason Goldy, a global team leader for Alliant Insurance’s Litigation & Contingent Risk Practice, said that insurers will continue to adjust their approach. Goldy said that “in the last six months you’ve seen these adjustments and I would think that you’re likely to see them accelerated if there are material losses,” but clarified that “the market will survive.” 

In a similar vein of thinking, Michael Perich, head of litigation insurance at Lockton, agreed that “the market is fluid and it's proven the ability to adapt to things.”

Shareholder claims have often been identified as lucrative opportunities for litigation funders, with class actions being brought on behalf of investors who allege that companies have failed in their disclosure and transparency obligations. However, as with all litigation investments, there can be no certainty of success as has been demonstrated in the judgement for two shareholder claims brought in Australia.

An article in The Australian Financial Review covers the judgement handed down in the Federal Court of Australia, where Justice Yates ruled in favour of Commonwealth Bank of Australia (CBA) in two shareholder class actions brought against the bank. The judgement covered the Zonia Holdings Pty Ltd v Commonwealth Bank of Australia and Philip Anthony Baron and Joanne Baron v Commonwealth Bank of Australia cases.

The class actions had been brought over allegations that CBA had failed in its disclosure obligations to shareholders over breaches of anti-money laundering and counter-terrorism financing regulations. In the summary of his judgement released today, Justice Yates concluded that information around these breaches were not “likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of CBA shares”.

The summary of Justice Yates’ judgement can be read here, with the full judgement scheduled to be released on 15 May.

Omni Bridgeway, which provided funding for the class action through its Funds 2&3, released an announcement following the judgement and said that “the applicant’s legal team is reviewing the Judgment and assessing the prospects of an appeal.” The funder went on to provide some insight into the financials behind its investment in the case, explaining that “Funds 2&3 invested A$9.6 million in the CBA investment and sold a 20% interest for A$7.5 million in June 2022.” Omni Bridgeway stated that “there is no cash impact from any adverse costs arising from the judgement”, due to its portfolio adverse costs insurance policy.The full Omni Bridgeway announcement can be read here.

Last month, LFJ covered the Bloomberg Law investigation into the activities of Russian billionaires who have been using litigation finance investments to avoid sanctions in the US and UK. These reports have now been further corroborated in the High Court, where a judge has ruled that litigation funder A1 is indeed still under the ownership or control of sanctioned Russian businessmen.

A new article from Bloomberg Law provides an overview of the 3 May ruling in the proceedings for Vneshprombank v Bedzhamov and Kireeva v Bedzhamov, in which Judge Sara Cockerill wrote that “there is reasonable cause to suspect that A1 is owned or controlled by a designated person or designated persons.” Focusing on the sale of A1 for the measly sum of $900, Justice Cockerill said that the financial documentation offered as evidence for the valuation “fails to provide a coherent or robust justification for that figure.” 

Justice Cockerill went on to offer a clinically robust conclusion that “the so called “verification” of the value is broad brush in the extreme and not at all what might be expected by way of professional valuation.”  The ruling did not hold back on ascribing malign intent to the sale, with Justice Cockerill highlighting that as the sale of A1 was made to an employee of the firm, “there are the bases for reasonable cause lying within the structure and timing of the disposal.”The full written ruling from Justice Cockerill can be read here.

Although it is often the high-profile disputes and large scale class actions that receive the majority of attention in the world of legal funding, those funders who are focusing on insolvencies are recording strong results on the back of widespread economic uncertainty.

An article in Legal Futures covers the recent trading update from Manolete Partners which shows that the insolvency litigation funder is achieving new heights, buoyed by an increase in the number of insolvencies. Manolete’s report showed that the funder had reached a new record of 418 live cases, with 311 of these cases representing new investments for the year ending 31 March 2024. This represented an increase of 18% in new case investments compared to the previous year.

The funder demonstrated that it was not only securing new case investments, but is also achieving strong results in terms of bringing these matters to a close. Manolete’s update reported a total of 251 completed cases for the year, which resulted in £24 million in settlements alongside “a small number of favourable judgments”.

Manolete’s chief executive Steven Cooklin attributed these impressive results to the “highest level of UK insolvencies for 30 years”, citing data from Insolvency Service which showed that in 2023, the volume of creditor voluntary liquidations “as at its highest level since 1960.” Cooklin also highlighted Manolete’s strong financial foundations that have been bolstered by an “amendment financing package with HSBC”, explaining that Manolete’s ability to generate liquidity “provides a strong and efficient financing platform for the business to take advantage of these attractive market conditions.”The full trading and business update can be read here.

Following LFJ’s reporting yesterday on one Australian class action that has run into difficulties around the issues of settlement approval and a funder’s commission, we are now seeing another case moving forward with its own approval process for the funder’s significant share of a $100 million settlement.

An article in Financial Standard covers the latest developments in the AMP Buyer of Last Resort (BOLR) class action, where the notice of proposed settlement shows that the litigation funder could be entitled to a commission of nearly $43 million from the $100 million total settlement. Augusta Pool 523 (Augusta Ventures), which funded the class action against AMP, has reportedly spent over $16.7 million on legal fees and disbarments during the case. 

Equity Financial Planners, the lead applicant for the class action, has submitted a funding equalisation order that is designed to “spread the cost of the funder's entitlements equally across all group members of the lawsuit.” The order explains that this is not an attempt to “increase the amount paid to the Funder”, but rather ensure that after the funder receives its commission, “all Group Members proportionately share in the payment of the Funder's Entitlement.” 

As the Federal Court assesses the scale of the funder’s return from the $100 million settlement, it will be evaluating whether Augusta’s expenses and Equity Financial Planners’ costs are reasonable and appropriate. This evaluation will take place over the coming months, with a settlement approval hearing scheduled for August 29.

The announcement of a settlement being reached is often viewed as the point at which a class action arrives at its preferred destination. However, in the case of the Merivale class action in Australia, it has taken only two months since the announcement of the settlement for the mood to sour and fresh obstacles to arise.

Reporting by the Sydney Morning Herald reveals that the $18 million settlement agreed in the class action brought against hospitality company, Merivale, is now under threat. Whilst a Federal Court hearing to review the settlement had been set for May 7, the law firm representing the applicants is now seeking to renegotiate the settlement, after there was a significant increase in the number of members registering for the settlement.

Adero Law’s Rory Markham stated that during the December mediation hearing, the total number of group members had risen to 788, and therefore the $18 million settlement figure now represented “a poor deal that has been substantially diluted by the additional registrations.” As a result, Adero has withdrawn its approval application and has been ordered by the court to provide further information and financial modelling to explain the group members’ decision to withdraw.

Richard McHugh, SC, who acts as counsel for Merivale, suggested that rather than increase the total settlement figure, “an obvious way through is for the funding commission or legal costs to be reduced”.

As LFJ reported in March, the without-admission settlement would have seen Merivale pay $18 million, with $8.6 million set to be distributed to cover legal costs and the litigation funder’s commission. According to the terms of the original agreement, Investor Claim Partner would have received approximately 25% of the settlement whilst Adero would have received approximately $1.75 million, including administration costs for settlement distribution.

In court, Justice Tom Thawley emphasised that regardless of whether or not “the lawyers for the applicants were grossly incompetent” in miscalculating the number of registrants, “the court isn’t going to approve a settlement which isn’t fair and reasonable.”