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Capital Protection Insurance
Downside protection for capital committed to litigation, so an agreed portion of that capital is preserved if the case fails.
- A judgment or award won
- A judgment against you
- Funder capital deployedThis cover
- Law firm fees and WIP
- Security for costs
- The opponent's costs
- Disbursements
- Own legal costs
Illustrative. The exposures a dispute can put on a balance sheet. What a policy responds to is set by its wording.
What is Capital Protection Insurance?
Capital Protection Insurance is a form of litigation risk transfer that may be arranged around capital deployed into a case or portfolio. Downside protection for capital committed to litigation, so an agreed portion of that capital is preserved if the case fails. Terms, where available, are set case by case through underwriting.
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Schedule · specimen
Capital Protection Insurance
Not a policy. A specimen to show how this cover is structured. Cover exists only when a policy is issued, on its own wording.
- Terms
- Terms, where available, are set case by case through underwriting.
- Protects
- Capital deployed into a case or portfolio, depending on policy terms.
- Terms
- Limit, premium and conditions are set by underwriting on the specific risk.
Clause 1
The insured
Who it is for
Litigation funders, investors in legal assets and, occasionally, corporates that commit their own capital to a case or a book of cases and want part of that capital protected against loss.
Clause 2
Insuring clause
What risks can be protected
An agreed portion of the capital deployed into one or more cases — commonly the principal invested — if the cases fail to return it.
Some structures protect a minimum return rather than principal alone.
Clause 3
Operation of cover
How it works
The insurer agrees to pay out if, at the end of the case or the portfolio, recoveries fall short of the protected amount.
Because the insurer is taking a view on the legal outcome, it will assess the underlying cases in the same way a funder does.
Clause 4
Underwriting
Underwriting factors
Capital protection is underwritten much like a credit exposure to a legal outcome.
Underwriters assess the merits and quantum of each case, the budget and how capital will be deployed, the manager's track record and diligence process, and — for portfolios — correlation between cases, concentration by counterparty or forum, and the waterfall that decides who is paid first.
Clause 5
Proposal documents
Information required
- (a)Case-level merits opinions and budgets;
- (b)The funding agreements;
- (c)The investment committee paper;
- (d)The manager's historic returns and loss record;
- (e)For portfolios, the eligibility criteria and the cross-collateralisation terms; and
- (f)The proposed attachment and limit.
Investors backing the structure may also need to see the policy wording.
Clause 6
Limit, premium and staging
Potential structure
- (a)An attachment point and limit set against total deployed capital;
- (b)A premium that is often contingent and paid from proceeds; and
- (c)For portfolios, cross-collateralisation so gains on one case offset losses on another before the policy responds.
Clause 7
Exclusions
What it does not cover
Capital deployed outside the agreed terms or above the protected amount; the funder's expected return unless expressly covered; and losses caused by breach of the funding agreement or the policy conditions.
Clause 8
Alternatives
Alternatives
- (a)Syndicating risk to co-funders;
- (b)Secondary sales of case interests; and
- (c)Accepting the unprotected exposure at a higher required return.
Clause 9
Territory
Jurisdiction notes
The policy follows the capital rather than the forum, so a single programme can cover cases in several jurisdictions.
Local funding rules still matter: champerty restrictions, disclosure requirements for funders, and the enforceability of funding agreements differ by forum and can affect whether a case is eligible.
Specimen for explanation only. Terms, limits and exclusions are set by underwriting on each matter and by the wording issued.
Single-case vs portfolio capital protection
| Single case | Portfolio | |
|---|---|---|
| Pays out when | That case fails to return the protected capital | The whole book falls short after netting wins and losses |
| Diversification | None | Wins offset losses before the policy responds |
| Typical buyer | Funder with a large concentrated position | Funder or investor with a book of cases |
| Adding new cases | Not applicable | Often allowed within agreed eligibility criteria |
Frequently asked
Does capital protection cover the funder's expected return?
Usually it protects some or all of the capital deployed rather than the return. Some structures protect a minimum multiple, at a higher cost.
Can capital protection cover a portfolio rather than a single case?
Yes. Portfolio structures net wins against losses across the book before the policy responds, which can make terms more efficient than case-by-case cover.
Is Capital Protection Insurance available for my dispute?
Availability depends on the merits, the quantum, the costs profile and the counterparty. Every risk is assessed individually and no cover exists until a policy is issued.
Does this quote a price?
No. Pricing is a function of the specific risk and is never quoted in the abstract. Nothing on this page indicates the cost or availability of cover.
Can it be combined with litigation funding?
Frequently, yes. Funding supplies capital; insurance defines the downside. The two are often structured together.
General information only. This page is not legal, financial, investment or insurance advice. Any insurance is subject to underwriting and to the terms of the policy wording issued.
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