One of my favorite concepts from the first year of law school is the idea that property is a “bundle of sticks”—i.e., “a collection of individual rights which, in certain combinations, constitute property.” United States v. Craft, 535 U.S. 274, 278 (2002). A fun concept in the abstract, it is increasingly of real-world import. By way of limited example, when the notion of property as divisible rights and obligations is combined with the understanding that litigation is an asset with real value (and real risks), the power of the litigation finance and insurance revolution becomes clear: They are the tools through which a litigation’s value is extracted and exchanged, allowing you to customize your risk profile.
In its simplest terms, litigation finance allows you to right-size upside potential and litigation insurance allows for the efficient shedding of downside risk, without concern for the vagaries of a judge and jury. So, when I’m asked what is important in choosing a funder, my answer is simple: Choose the funder capable of providing the broadest possible array of products that most efficiently optimize the risk profile of your portfolio.
Litigation finance allows you to capture upside potential.
Litigation finance helps companies with great claims pay their lawyers and build their businesses while their litigation is pending. Funding works as the exchange of money today for a potential share of case proceeds tomorrow. That exchange can happen before a case is filed, it can happen after a motion to dismiss, or even on the eve of trial. Understanding this reality, the key differentiating factor between funders will generally be (1) the amount of money they are willing to put into a case (i.e., is there a minimum or a maximum investment figure), (2) the size of the operation (and the attendant bureaucratic headaches), and (3) the team’s specialization (e.g., IP, investment-treaty arbitration, etc.). Much like the legal services industry as a whole, the risk-transfer space has its white-shoe firms, high-end boutiques, and mid-market players.
Here are some additional criteria to consider when choosing a funder:
- Capital. Always ask whether the funder has capital to fund your case or is working as a broker or advisor bringing your deals to other capital sources.
- Mandate. Different funders focus on different types of cases (e.g., domestic commercial disputes, international arbitrations, personal injury cases, etc.). Ask whether the funder has experience funding cases like yours, and be specific about the subject matter. Just because a funder works in the commercial space does not necessarily mean, for example, that they fund patent matters.
- Team. You will want to work with an experienced team that has funded cases in the past, that knows how to execute on deals, and that has been in the litigation trenches, so that they can add value as the case proceeds. Ask for references if necessary.
- Financial Terms. While funders will not be able to provide specific terms until they study your case, it’s helpful to ask at the outset about the different kinds of returns the funder expects to receive, to ensure they match your expectations. Different funders have different “costs of capital,” and that can make a big difference in terms of the financial proposal they offer you.
- “Fit.” If you enter into a funding deal, you are entering into a multi-year relationship with that counterparty. It is essential that you enjoy each other’s company, see the litigation in similar ways, and will be good commercial partners. You need to like your funder. And you should always endeavor to sit down in person with the funder before you enter into a transaction, and raise any challenging issues at the outset, so you can see how the funder navigates them.
- Capabilities. Litigation funding is one important litigation risk-transfer tool, but it’s not the only one available today. Depending on the situation, litigation insurance may be a lower-cost way to shift some of the risk and expense associated with a litigation. You will be well-served by working with a litigation funder that also has in-house insurance capabilities, so they can explain the full breadth of product offerings available to you. Certum Group is currently the only provider offering both litigation funding and litigation insurance solutions.
Litigation insurance allows you to transfer and limit down-side risk.
Over the last ten years, litigation insurance has risen from an obscure boutique product to an increasingly important part of the litigation market. At its core, litigation insurance involves the exchange of money (a premium) for protection should a particular event occur (the policy). The amount of a particular premium is referred to as the “rate-on-line,” which is the ratio of the premium to the total payout expressed as a fraction.
As a practical matter, the insurance products themselves come in a wide variety, including:
- Class Action Settlement Insurance, which is a product designed to bridge the gap between plaintiff and defendant in contentious claims-made-settlements by placing a ceiling on the aggregate claim value a company will be required to pay.
- Adverse Judgment Insurance, where the insurance carrier takes on the financial risks and liabilities for businesses — at any time before settlement and for a known, fixed cost. We most commonly see this product in the context of an M&A transaction or financing, where AJI Insurance negates the requirement for the use of escrows or indemnities.
- Judgement Preservation Insurance, which provides a backstop to any judgment you have received which may be subject to appeal, allowing an organization to lock in a particular judgment amount, regardless of what the court ultimately decides.
Certum Group is uniquely placed to serve your business’s risk-transfer needs.
Certum is the only company that offers both litigation finance and insurance. And Certum stands out as a boutique firm with an experienced team of former litigators who have the intellectual and in-house capital resources to appropriately handle litigation of any size across any subject matter. More importantly, however, we approach the world of litigation finance and insurance as part of the same risk-transfer ecosystem, in which both litigation funding and insurance can be utilized to protect upside value and decrease downside risk. When paired with our team’s broad legal experience at leading defense and plaintiff-side firms, clerkships at every level of the federal system, a dedicated capital pool, and long-standing industry experience, we are uniquely positioned to identify the best products for you, provide those products under a single roof, and do so with the care and attention you would expect from any lawyer in private practice.