In a continuation from the previous week, the second part of an interview with Stephen Kyriacou Jr., a managing director at Aon’s Litigation Risk Group, was discussed, focusing on the current challenges in the litigation and contingent risk insurance market. Stephen highlighted the complex nature of underwriting in his field, indicative of a potential increase in claims activity. Rise in such activity naturally influences how insurers appraise new opportunities.
In recent years, numerous insurance claims were paid out without any challenges from insurers. This aligns with Stephen’s assertion about the straightforward nature of litigation risk insurance policies. If damages related to lawsuits go beyond a pre-set threshold (the “retention” or “deductible”), insurers are expected to handle the remaining payout.
Commenting on an example from 2022 concerning a judgment preservation insurance policy, Stephen noted that the insurer—who had to pay the claim—looked to understand what went “wrong” in underwriting instead of attempting to find a way out of paying the claim. This underscores insurers’ need to continue learning from policies and any resultant implications.
While the past year did not see any claims against Aon, there were some unfavorable developments within the industry that have not evolved into claims yet. The industry is presently witnessing some “rate hardening,” smaller line sizes, increased fees for underwriting and greater timelines for placement, all fueled by insurers engaging their external counsel for meticulous due diligence. Litigation of such nature may have become more challenging recently, yet industry professionals view it as a positive development for the overall health of the market in the long-term.
Some insurers are particularly cautious about offering judgment preservation insurance for patent infringement cases involving Section 101/Alice issues or cases with pending Inter Partes Review (IPR) proceedings or the potential for future IPR proceedings. Further inhibiting their decision is the perceived inconsistency in the jurisprudence of the federal circuit. However, Stephen noted that most carriers in the space are still open to insuring both plaintiff-side and defense-side patent infringement cases, even though placing such deals has become considerably more challenging recently.
Litigation funders and contingency fee law firms also pose challenges for insurers in the litigation and contingent risk insurance market. Many insurers have reservations about these sorts of risks due to persisting debates on the topic and the perception that litigation funding of plaintiff-side law firms are driving social inflation or runaway jury verdicts.
The interview with Stephen thus suggests the market is going through a swift maturity process. The combination of clear communication about insurable risks and focus on risk abatement measures offer potential for expanded coverage in the future. Continuous engagement, creativity, and improved performance from insurers is crucial for maintaining a healthy litigation ecosystem, particularly in the domain of patent litigation.
The interview series will conclude next week with its third installment.