Litigation and Legal Risks
Litigation risk insurance brings financial certainty to legal positions - whether defense or plaintiff side, early-stage or appellate, or even regulatory.
Overview
Atlantic’s Structured Solutions Group is made up of experienced litigators (on both the plaintiff and defendant sides, in trial and appellate courts), M&A advisors, and structured finance professionals. We provide risk management advice and obtain litigation and contingent risk insurance policies addressing a wide variety of known legal risks, ranging from litigation to adverse regulatory action to creditor claims in bankruptcy. We also counsel clients on financing the cost of insurance where commercially desirable, and can bring our clients together with capital providers. We provide structuring advice concerning financing and other transactions associated with the insurance policies we place.
Applications & Benefits
Litigation risk insurance is a flexible tool for shifting legal risk. Policies are bespoke and our team has the legal and financial structuring expertise to craft the most effective solution for a given situation. Below are a few examples illustrating the work we do.
Application:
Adverse judgment insurance puts a cap on prospective litigation liability. It can be obtained after a case has been filed, or can provide coverage for litigation that may or may not emerge. In exchange for an up-front premium, insurers will issue a policy that pays out if liability in a litigation exceeds a pre-agreed amount.
Benefits:
Establishes a cap on what was previously an unknown contingent liability.
Removes legal risks from transactional negotiations and allows parties to focus on core business.
Accelerates distributions in liquidations (both in and out of court) and fund wind-ups.
When obtained as part of a sale process, reduces or eliminates escrows and cash holdbacks, meaning a seller can distribute proceeds of a sale immediately on closing.
Decouples bankruptcy proceedings from related litigation, allowing faster confirmation of restructuring plan.
Application:
Contingent fee insurance increases litigators’ ability to pursue contingency fee litigation engagements by providing a meaningful financial recovery if a case is unsuccessful. These policies will pay the firm for a significant percentage of the hours worked on a given matter, plus 100% of expenses. The policies will pay out if the firm receives less than a specified amount (negotiated with an insurer) in fees, whether upon final resolution of the case or after a set time period has elapsed.
Benefits:
Turns a contingency fee that may or may not be realized into a certain cash flow.
Increases firms’ capacity to accept contingency fee engagements.
Allows for confident financial planning and spending on growth and resources.
Facilitates lower-cost litigation funding.
Application:
Judgment preservation insurance locks in the value of a legal award. Where a plaintiff in litigation has won a judgment in the trial court, insurance can cover appellate risk, and pays out if the award is reduced or reversed on appeal.
Benefits:
Provides certainty of outcome to the plaintiff.
Facilitates financing of the award at more affordable rates than traditional claims monetization or litigation funding, allowing the plaintiff immediate access to their cash without waiting for the appeals process to conclude.
Improves position in settlement negotiations.
Turns a projected and contingent future recovery into an asset that can be relied on by the company.
In the context of a deal or valuation, allows recognition of the judgment’s full value.
Application:
Legal costs insurance for in-house counsel or litigation funders guarantees the return of at least the legal “spend” on an affirmative case or portfolio of cases. If a plaintiff-side case returns less than the plaintiff or funder spent on legal fees and expenses, an insurance policy will cover the difference.
Benefits:
Minimizes financial downside of filing litigation.
Facilitates pursuit of meritorious claims that might otherwise be forgone because of budgetary constraints.
Allows for more certain accounting and financial projection.
Improves investment profiles and lowers cost of capital for funds.
Application:
Successor liability insurance accounts for the risk that the buyer of a company or asset will also inherit legal liabilities. If there is an identified liability that a seller is concerned about assuming, an insurance policy can be obtained that will pay for that liability if a court holds that the buyer is legally responsible for it.
Benefits:
Removes purchaser’s risk of assuming liabilities.
Mitigates the need for a bankruptcy “free and clear” sale, allowing distressed companies to avoid the cost of filing for chapter 11.
Widens the net of potential buyers, increasing competition and ultimate sale price of assets.
Allows prospective buyers to focus on core business rather than potential liabilities.
Application:
Arbitration award default insurance for investor-state disputes solves the problem of foreign governments defaulting on arbitral awards. Against a sovereign, claimants face the possibility that even after a successful dispute, the state will simply refuse to pay. Atlantic can place an insurance policy that will pay a significant portion of the defaulted award. These policies can be obtained before the arbitration has commenced, while it is ongoing, or after an award has been issued.
Benefits:
Widens the scope of arbitral claims that can be pursued.
Increased financial certainty for claimants, counsel, and funders.
Relieves claimant and their counsel of the judgment enforcement burden.
Lowers the cost of funding.
