Capital Protection
What Is Capital Protection Insurance?
Preserving deployed capital when a case does not succeed.
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The short answer
Capital protection insurance protects some or all of the capital a funder or investor commits to a case or portfolio if the case does not return it. It lets funders reduce the risk of non-recourse investments and can lower their cost of capital or support borrowing.
In brief
- It protects capital deployed, not costs orders.
- It is written for single cases or diversified portfolios.
- Premiums are often contingent and paid from proceeds.
- Investors and lenders may rely on the protection.
- 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.
Background
As litigation funding grew, funders sought ways to limit losses on large cases and portfolios.
Capital protection emerged to fill that need.
How it works in practice
The insurer assesses the cases and agrees to pay if recoveries fall short of the protected amount.
Worked example
A funder deploys £10m and insures £6m. The case fails; the insurer pays £6m, and the funder's loss is limited to £4m.
Figures are invented to show the mechanics. They describe no real client, matter or outcome.
What underwriters look for
Case-level merits, portfolio diversification, the manager's track record and a clear waterfall.
Jurisdiction notes
Cover follows the capital rather than the forum, but local funding rules affect eligibility.
Related questions
How does it combine with ATE?
How is a portfolio insured? See the related guides below.
Frequently asked
Who buys capital protection insurance?
Mainly litigation funders and investors in legal assets, occasionally corporates funding their own claims.
Is capital protection the same as ATE?
No. ATE covers liability for costs if a case is lost. Capital protection covers the capital invested in a case or portfolio if it is not returned.
How much of the capital can be protected?
It depends on the case and the premium. Many structures protect the principal invested or part of it rather than the full expected return.
When does capital protection pay out?
When the case or portfolio ends and recoveries fall short of the protected amount, in line with the policy terms.
Can capital protection help a funder raise money?
It can. A defined downside can make a fund or loan easier to finance, because investors and lenders can rely on the protected amount.
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.