An insurance market has developed around litigation risk, and it is used in transactions as well as in disputes.
Judgment preservation. Protects a plaintiff holding a favourable judgment against reversal or reduction on appeal, which allows the judgment to be monetised or used as collateral.
Adverse judgment cover for a defendant, capping exposure above a defined attachment point.
Contingent legal risk cover used in transactions where a pending or threatened claim would otherwise prevent a deal — the risk is transferred to an insurer and the transaction proceeds.
Adverse costs cover in fee-shifting jurisdictions and in arbitration.
Portfolio cover across a set of claims.
Underwriting. Insurers conduct a substantive legal assessment, review the record and obtain independent opinions. The process is intensive and requires disclosure of privileged analysis to the insurer, with the attendant waiver questions addressed by common interest agreements.
Pricing reflects the assessed probability, the attachment point and the limit.
Practical use. Most common where a discrete, well-defined legal risk is blocking a transaction or a distribution, and the parties’ disagreement about its probability is what prevents agreement.