Contingent liability insurers are expanding their portfolio to cover a wide range of risks, including the interests of plaintiffs, litigation funders, acquirors in M&A transactions, and law firms. The suitability of a situation for such coverage can be evaluated through several key considerations.
First and foremost, the clarity of the legal issues at hand plays a pivotal role in any insurance submission. Contingent liability insurance is generally aimed at risks that hinge on legal questions, which insurers can gauge through years of case precedent, statutory interpretation, or administrative rulings. Underwriters often rely on legal analytics for better assessment of these risks.
Another critical factor is the financial structure of the matter. Insurers need a robust and credible damages model to determine how a policy can “go off risk,” meaning how the matter would resolve favorably without necessitating a claim. Legal professionals should ensure their financial interests are transparent and thoroughly analyzed, whether through contingency fee agreements, projected budgets, or third-party damages analyses.
Understanding the motivation behind seeking insurance is paramount. Insurers are particularly vigilant about adverse selection risk, where applicants might present only speculative, high-risk cases. The emphasis should be on cases with strong legal foundations and well-considered damages projections. Potential insureds should clearly articulate their rationale for insurance, contextualizing it within their overall business strategy and financial goals.
Vanbridge’s Connor Williams and Alston & Bird’s Steve Penaro highlight that a strategic approach to insurance, rather than viewing it purely as a risk transfer mechanism, can significantly ease the submission process and foster creative solutions. More on their insights can be found here and here.