With the availability of litigation funding and litigation insurance products becoming more widely known and understood, applications are on the increase. If you believe your client has a meritorious claim and the chances of them proceeding is limited without the support of either a litigation funder to finance the claim or an ATE insurance policy to transfer the risk of adverse costs, it’s important to understand what qualifies as a meritorious claim in the eyes of funders and insurers. You may be surprised by the answer.
How strong is your legal claim?
This is a question that must be answered before any funder or insurer will consider financially investing in a case or offering an insurance policy to cover adverse costs risk. As most people working in litigation know, it depends on many factors: the credibility of any witness evidence; the judge on the day; the quality of accessible documentary evidence; and the strength of your legal team to position and argue the case.
What Litigation Insurers Want to See
In the case of ATE insurance, a completed application form with supporting documents is required. The supporting documents will depend on the type of legal action and the stage the proceedings have reached in the litigation process. The insurer wants to see the pertinent documents in the action. Too little or too many documents can have a negative impact on the assessment process.
Too many could result in an insurer declining the application on the basis there is too much information for (what tends to be small underwriting teams) to review.
Too little information could either draw out the process as the underwriter has to keep requesting further information and/or risk the policyholder not making a material disclosure impacting any cover in place. This is not directly linked to the merits of the case but an underwriters perception of the case makes it vital that the application is presented in an appropriate way. Without a good broker to guide this process, it can take many unsuccessful attempts to get the balance right.
The application aside, the case needs to have good prospects of success. Insurers often like the legal team to provide the likelihood of success as a percentage but will accept more general statements such as ‘good’, ‘excellent’ etc. Insurers are unlikely to insure a case where the assessment suggests that a case is borderline such as ‘better than evens’ chance or at least an arguable case.
A summary of the case along with the strengths and weaknesses is also needed (preferably drafted by Counsel as an advice but some insurers accept an advice drafted by the acting Solicitor).
What Litigation Funders Want to See
What constitutes an attractive case to a litigation funder is not a one-size-fits-all approach across all industries and types of case. The market is nuanced. In the absence of an existing relationship with a litigation funder, an insurance broker could offer tailored, case-specific knowledge on your chances of success.
Some very helpful information for the legal team to understand is that most Litigation Managers responsible for the initial ‘yay’ or nay’ of a case are ex-lawyers. Therefore, if you know your case could be down to a “toss of a coin” but are confident of your prowess as a lawyer to convince the coin to fall into your lap, the Litigation Manager will know this too and the answer will be a resounding “no”.
“Law firms don’t understand how much risk we’re prepared to take – we see a lot of weak cases”
Commerical and insolvency funded cases are on the rise due to companies deciding to share the risk with funders. However, this significantly impacts the probability of your cases being funded.
Average % of successful funding applications by type:
Class actions: 3/10 – For every 10 x class action cases submitted, 3 of them will be funded.
Insolvency Litigation: 1/30 – Just under 4% of insolvency application will get a ‘yes’.
Commercial litigation: 1/100 – Commercial litigation cases have the lowest conversion rate
When the cost of funding cases could exceed $20mil, a 50/50 chance just won’t cut it. A better guideline would be to work within the realms of a 75% plus probability, if prospects could be accurately assigned a percentage. A good (hypothetical) quality check question to ask yourself would be:
“If I were looking at a contingency basis and it was my money on the line, would I be willing to fund on the basis of this statement?”