Litigation Finance
Litigation Funding vs Litigation Insurance
Two different instruments, frequently confused, often combined.
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The short answer
Litigation funding pays the costs of a case in exchange for a share of any recovery; litigation insurance caps a defined downside in exchange for a premium. Funding solves a cash problem, insurance solves a risk problem, and the two are often used together.
In brief
- Funding pays costs as they are incurred; insurance pays only if a defined loss occurs.
- Funders take a share of the upside; insurers take a premium.
- Funders frequently require ATE for adverse costs.
- Which to use depends on liquidity, appetite for risk and the forum.
Illustrative. A teaching shape, not pricing. Funding pays for the case and takes a share of the upside; insurance caps the downside for a premium. Many matters use both.
Background
Both markets grew over the past two decades and now frequently work together in commercial disputes.
How it works in practice
A typical funded case pairs a funder's commitment for own costs with ATE for adverse costs.
Worked example
A funder pays £3m of costs for a share of recoveries; the claimant insures £2m of adverse costs.
Figures are invented to show the mechanics. They describe no real client, matter or outcome.
What underwriters look for
Both funders and insurers look for strong merits, proportionate budgets and recoverability.
Jurisdiction notes
Funding rules differ by forum; some restrict third-party funding of litigation while allowing it in arbitration.
Side-by-side comparison
Funding pays costs as they arise and takes a share of the upside.
Insurance pays nothing unless a defined loss occurs, and caps the downside for a premium. Funding solves a cash problem; insurance solves a risk problem.
When funding is the answer
When the claimant cannot, or does not want to, pay its own legal costs as the case runs.
When insurance is the answer
When the claimant can pay its own costs but wants protection against adverse costs, security, judgment reversal or capital loss.
When both are used
When costs need funding and adverse costs need to be capped — a common structure in commercial claims in loser-pays forums.
Related questions
What does each cost?
How are they sequenced? See the related guides below.
Litigation funding vs litigation insurance
| Litigation funding | Litigation insurance | |
|---|---|---|
| What it solves | Paying for the case as it runs | The cost of losing |
| Pays out | Legal costs as they are incurred | Only if a defined loss occurs |
| Cost to you | A share of any recovery | A premium, often only on success |
| If you lose | Usually nothing owed (non-recourse) | The policy pays up to its limit |
| Often combined? | Yes — funders frequently require ATE | Yes — alongside funding or self-funding |
Frequently asked
Can I use litigation funding and insurance together?
Yes, and it is common: funding pays the costs of running the case, and ATE covers the other side's costs if it fails.
Which is cheaper, funding or insurance?
It depends on the outcome. Funding costs a share of the recovery if you win; insurance costs a premium, often payable only on success. Compare what you would keep in each scenario.
What does a litigation funder take if I win?
Usually a multiple of the capital it deployed, a percentage of the recovery, or the greater of the two, as set out in the funding agreement.
Does litigation insurance pay my lawyers as the case runs?
No. Insurance pays only if a defined loss occurs, such as an adverse costs order. Paying lawyers as the case runs is what funding or your own budget does.
Do funders require insurance?
Often, in loser-pays forums: funders commonly require the claimant to hold ATE so that neither is left with an unpaid adverse costs order.
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.