Capital Protection Insurance

The litigation finance industry has matured over the past decade resulting in billions of dollars deployed each year. Large litigation finance companies have evolved, many with billion-dollar funds, deploying capital across a multitude of litigation matters, geographies, and structures. Capital Protection Insurance is designed to protect the investment capital used to fund a case or group of cases against an adverse ruling in the litigation. Further, the policy can be ceded to a third-party lender that is providing leverage (back leverage) to the litigation funder as a way to create a more efficient cost of capital to the corporation or law firm utilizing the funding.

Stage of Litigation

Capital Protection Insurance can be used at any stage of litigation and is deployed after an investment has been made in a case or group of cases by a litigation funder.

How It Works

Any case or group of cases can be a candidate for capital protection. Once a litigation funder has determined the investments they are looking to protect or seek back leverage for, the process is as follows:

• The insurer will conduct an underwrite of the risk, which generally requires diligencing the record and assessing the legal and factual issues.
• Once the initial assessment is complete, the insurer will usually engage in a Q&A with the litigation funder, the law firm, and the plaintiff to help resolve any open items.
• If the risk is insurable, the insurer will propose policy terms and pricing and if applicable, work with third-party lenders to facilitate back leverage financing.
• Typically, there is no deductible or self-insured requirement, just a one-time premium which transfers 100% of the capital risk to the insurer.

Key Benefits

• Ensures certainty by providing downside protection for investments made by litigation funders, thereby ensuring 100% capital preservation.
• Can be used to secure third-party debt so that investments can be fully or partially refinanced/monetized.
• Facilitates a more efficient cost of capital as third-party lenders look to the underlying insurance policy for collateral rather than underwriting the merits of the litigation assets.