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How Do Companies and In-House Departments Assess Legal Risk?

by | Jun 30, 2023

litigation risk

Certum Group, which provides bespoke risk transfer solutions for companies facing the uncertainty of litigation, has launched its second annual Litigation Risk Survey to understand how companies and in-house departments assess litigation risk.

Last year, general counsel and other in-house leaders from across more than 50 different industries responded to questions related to their department’s litigation activities and legal spend, tolerance for litigation risk, and knowledge of the solutions available to help transfer risk and monetize claims, among other issues.

“The goal of this survey is to better understand the risk-related issues facing in-house departments,” said Kevin Skrzysowski, Director of Business Development and Marketing. “We want to learn what risk factors companies are facing so we can work with them to make sure they have the resources, knowledge, and tools to assess and mitigate litigation outcome risk.”

In-house legal departments have said they face growing litigation burdens with limited staffing and financial resources—and yet most have not taken advantage of tools like risk transfer products to help manage workloads and ease budget uncertainty.

We learned last year that the vast majority of in-house leaders—more than 80 percent—reported that their departments had 10 or fewer employees, and more than 70 percent said their legal budgets were less than $1 million. The survey results showed that the size of the company and the size of the legal department do not necessarily correlate and provided further evidence that in-house lawyers and law departments are stretched thin

Nearly 45 percent said they did not have enough resources to pursue litigation. Companies have insurance that covers litigation expenses, but very few of them are actually using their policies. Most say insurance is used less than 10 percent of the time in litigation.

We also discovered that most in-house departments carry a substantial litigation workload. 75 percent of respondents said they are currently defending active litigation, and 20 percent have 10 or more cases on the docket. Ten percent of respondents said they are fielding more than 50 active cases.

Perhaps unsurprisingly, given the tight budgets and small staffs, relatively few of the active cases are plaintiffs-side matters. Nearly half of respondents said they are not currently pursuing active affirmative litigation. And of the remaining respondents, the overwhelming majority are engaged in only a handful of plaintiffs-side matters.

Most companies shared they attempt to find affirmative claims themselves. Less than one-third receive help identifying claims from outside counsel and only a handful receive the assistance of a litigation funder. The data suggests that companies should rely more heavily upon outside help to bring affirmative claims to their attention. If given the chance, however, nearly half would pursue claims if they were made aware of them, and 54 percent said they would be interested in pursuing affirmative cases regardless of the claim amount.

Nearly 75 percent of respondents said they were at least somewhat familiar with litigation funding, but only five percent say they have used funding. Half of the respondents reached out to funders directly or via funding brokers. Many of the respondents said the cost of funding and/or the structure of funding were the most important factors when choosing among funders.

Assessing litigation risk remains a responsibility firmly in the hands of the general counsel, respondents said. Asked to rank the most important factors they use to assess risk in defense cases, in-house counsel said the “size of possible damages” and whether the matter is a “bet-the-company” case ranked first. The “likelihood of prevailing” in the case ranked second. When the company is considering bringing an action, however, the factors are reversed. By a wide margin, the likelihood of winning the case was the most important issue for in-house counsel when considering affirmative claims.

We’re curious what has changed in the last year, what other risk factors we’ll discover, and more insights that in-house counsel will share with us.

To respond to this year’s survey, click here.

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  • Kevin Skrzysowski

    Kevin Skrzysowski is the National Director of Business Development and Marketing at Certum Group. Using Certum Group's proprietary quantitative and qualitative analysis and more than 20 years of legal and business expertise, Kevin assists companies and their counsel in designing optimal settlement structures to mitigate financial risk arising out of class action settlements.

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