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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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Case Developments Commercial

Discovery Application Filed by Russian Billionaire Over Litigation Funding

By Harry Moran and 4 others |

The sanctioning of Russian business owners since 2022 has led to a plethora of litigation, as one ongoing case in Florida sees two Russian nationals in a dispute over the funding of litigation between them.

Reporting by Bloomberg Law covers ongoing proceedings in a Florida court, where sanctioned Russian billionaire Andrey Guriev is seeking discovery on the funding of claims brought against him by Alexander Gorbachev. The discovery application relates to a series of cases brought against Guriev by Gorbachev over his claimed partial ownership of Guriev’s company, with Gorbachev’s legal costs, insurance and additional expenses having been paid by Sphinx Funding LLC, a subsidiary of 777 Partners. 

Gorbachev failed in his claim brought against Guriev in the UK, but has since claimed that he does not have the £12 million that he has been ordered to pay to Guriev in court costs. Mr Guriev’s counsel from Boies Schiller Flexner, explained the reasoning behind the discovery application in a memorandum of law, stating:

“Mr. Guriev hopes to discover information relevant to the identities and ultimate sources of the funds provided by the third-party funders who financed Mr. Gorbachev’s failed, frivolous, and potentially fraudulent claims, as well as the true motives and objectives in bringing those claims.”

In response to a prior application by Guriev to have the two funders added as parties to the case, Joshua Wander, managing partner and co-founder of 777 Partners, stated that even though the company had covered some of Gorbachev’s legal costs, it had no stake in the result of the litigation. Furthermore, Wander had claimed that his companies had no paid any of Gorbachev’s legal costs after May 2023, following a “breakdown in the relationship between Alexander and the funders”.

Case Developments Commercial

£16m Settlement Reached in Dispute Between Funder and Investor’s Estate

By Harry Moran and 4 others |

The funding of arbitration claims brought against nation states represent challenging opportunities for legal funders, with the potential of a large return balanced against the complicated nature and prolonged timelines of these disputes. A new settlement in the High Court demonstrates that these issues can even extend to disputes between the claimant and funder, even when a valuable settlement is secured.

Reporting by the USA Herald covers the move by the High Court of Justice of England and Wales to finalise the settlement in a dispute between litigation funder Buttonwood Legal Capital, and the estate of late Finnish mining investor Mohamed Abdel Raouf Bahgat. The £16.74 million settlement which was approved by the court on Tuesday ended the legal action that Buttonwood began in 2022 to recover a share of the award won in Bahgat’s arbitration case against Egypt.

As Mr Bahgat died on 8 October 2022, the settlement was reached with his estate. The arbitration claim dated back to 2000 when Bahgat was arrested by the new government and had his assets frozen and his mining operations project seized. The arbitration ended in 2019 at a tribunal in The Hague where Bahgat was awarded $43.8 million, which following two years of interest and an enforcement dispute, finished as a $99.5 million payout in November 2021. Buttonwood brought a claim to the High Court in the following year to retrieve its share of the amount, further complicated by a prior renegotiation of terms between Buttonwood and Bahgat in 2017.

Neither Buttonwood Legal nor the Estate of Mr Bahgat have publicly commented on the settlement.

Commercial Regulatory Issues

LSB Director Argues Funding Should Move to a “Mandatory Model” of Regulation

By Harry Moran and 4 others |

With next Monday set as the deadline for the Civil Justice Council’s (CJC) Interim Report and Consultation on litigation funding, we are beginning to hear more vocal arguments about the approach the government should take towards regulating the litigation funding industry.

An article in Legal Futures provides an overview of remarks given by Richard Orpin, Director, Regulation & Policy at Legal Services Board, at a consultation event for the CJC review in Oxford. In his speech, Orpin advocated for “moving away from the voluntary model of regulation to a mandatory model” for litigation funding, suggesting that it should be brought “into the remit of the FCA (Financial Conduct Authority).

Orpin argued that the rise in the use of litigation funding had “coincided with an increase in poor practice by some law firms in receipt of that funding,” and that “this pattern of behaviour undermines trust confidence in the ‘no win, no fee’ sector.” Orpin put forward the view that regulators needed to take a “more proactive” stance, highlighting his organisation’s concerns over “poor standards of client care, short-term financial gain being put above the interests of client and duty to the court.”

Other speakers at the event varied in their perspectives, with Richard Blann, head of litigation and conduct investigations at Lloyds Banking Group, similarly arguing that the current model of self-regulation was “ineffective and inadequate” and that the Association of Litigation Funders (ALF) “has no teeth”. 

Adrian Chopin, managing director and founder of Bench Walk Advisers, offered a dissenting view and questioned some of the preconceptions about funding, saying that the suggestion there are “waterfalls where the funders take everything and the client gets nothing” demonstrated a “gross level of ignorance”.