In this video blog, Kevin Skrzysowski, Director at Certum Group, provides an overview of Contingent Fee Insurance.

What is contingent fee insurance?

• Contingent fee insurance, commonly referred to as WIP Insurance which stands for “work in progress” provides a guarantee that a lawyer who is handling a matter on a contingent fee basis, or a company that has a contingent claim will receive all or part of the time and expenses they have invested in a case regardless of outcome. 
• In exchange for a fixed premium to a bespoke policy, the law firm or company holding a claim can receive downside protection preventing a total loss of time and materials incurred prosecuting the litigation.  

How does contingent fee insurance work? 

• The risk goes through an underwriting process by insurance underwriters who specialize in creating litigation insurance solutions for known, threatened, or pending litigation. 
• This underwriting process usually requires substantial diligence.
• Once the insurer has completed the underwrite, it will usually engage in a Q&A with the law firm (for any items that might need clarification).
• Determine what the firm or company’s legal, business, and financial objectives are.  
• If the risk is insurable, the insurer will propose policy terms and pricing.
• A one-time premium to a bespoke policy which transfers up to 100% of the risk to the insurer.

What are the key benefits of contingent fee insurance? 

• Provides certainty: regardless of what happens in the case, the law firm will recover its WIP and expenses.
• It also helps with litigation funding.  Here’s how: often, law firms will seek funding of their fees and third-party expenses from financial institutions including litigation funders. Instead of going to the funding market first, companies or law firms can look to insurance to remove the outcome risk. 
• If the risk is secured then non-recourse funding becomes recourse funding because the insurance is now the collateral and the law firm can borrow at the most efficient cost of capital.
• Leveraging the insurance also allows law firms to pursue claims they may otherwise turn down due to fear of not being able to collect sizable fees and expenses.
• And lastly, it can facilitate settlement as Contingent Fee Insurance can provide the leverage needed to mitigate any notion that a cash-strapped plaintiff will settle on the cheap.