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.