Litigation Finance
What Is Litigation Insurance?
How risk transfer applies to disputes, and what it does and does not do.
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The short answer
Litigation insurance transfers a defined financial risk arising from a dispute to an insurer in return for a premium. Depending on the policy, it may cover the other side's costs if a case is lost, your own legal costs or disbursements, capital invested in a case, or the value of a judgment or award. It is underwritten case by case and responds only as the policy wording sets out.
In brief
- It covers defined financial risks in a dispute, not the dispute itself.
- The main forms are ATE, capital protection, judgment preservation and adverse judgment cover.
- Premiums may be paid up front or deferred until, and contingent on, success.
- It is often combined with litigation funding rather than chosen instead of it.
Background
Litigation insurance grew from after-the-event cover for claimants in England and Wales and has broadened into a market for commercial, arbitration and legal-asset risk in many forums.
How it works in practice
The buyer identifies the exposure to be capped, underwriters assess the case, and a policy sets a limit, a premium and conditions.
The policy then responds to the losses it defines.
Worked example
A claimant with a £20m claim insures £2.5m of adverse costs. If it loses, the insurer pays the opponent's costs up to £2.5m; if it wins, the insurer pays nothing and the premium becomes due.
Figures are invented to show the mechanics. They describe no real client, matter or outcome.
What underwriters look for
Merits supported by independent counsel, proportionate budgets, a solvent opponent and an experienced legal team.
Jurisdiction notes
Adverse costs cover is most relevant in loser-pays forums; judgment and capital risks dominate where each side bears its own costs.
Related questions
How much does it cost?
Can it satisfy security for costs? How does it differ from funding? See the related guides below.
Frequently asked
What does litigation insurance cover?
Depending on the policy: the other side's costs if you lose, your own disbursements or legal costs, capital invested in a case, the value of a judgment or award on appeal, or an identified liability. Each is a separate type of cover.
Is litigation insurance the same as legal expenses insurance?
Before-the-event legal expenses insurance is bought in advance, often bundled with other policies. Litigation insurance in the commercial sense is usually bought after a dispute arises and is underwritten on that specific dispute.
Does litigation insurance guarantee I will win?
No. It changes the financial consequences of losing, not the outcome of the case.
Who pays for litigation insurance?
The insured party, usually the claimant, sometimes a funder or law firm on its behalf. The premium is often deferred and payable only if the case succeeds.
Can defendants buy litigation insurance?
Yes. Adverse judgment and contingent risk insurance let a defendant cap the loss above an agreed level if a claim against it succeeds.
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.