Litigation Finance: 5 Ways to Manage Risk

5 x Litigation risk tools infographic

There has been growing adoption of litigation finance in Australia as businesses and legal professionals recognise the strategic value of litigation finance to help clients manage the cost of litigation. By offering litigation risk management tools to your client, it can be the confidence they need to proceed with a claim.

We see there are five main options of how to distribute the risk involved in every litigation matter. These 5 litigation risk management tools can provide essential financial support, enabling clients to pursue justice without bearing the full financial risk.

Option 1: Self fund/insure  

Historically, self funding/insuring litigation has been the most common (and only) option for clients.

The client can afford to pay, is comfortable taking the financial risk and therefore will retain the full potential recovery from that case in the event they are successful. In the absence of the next 4 options, if they were not happy to carry that risk, then they would not proceed with the case.

Option 2: Third party litigation funding (TPF)

When a client cannot afford to fund the case or prefers not to carry all of the risk, and is open to the funder’s success fee, it’s important to align the case with the right funding partner.

The type and size of the case often determine which funders are likely to have an appetite for it.

That’s where working with a specialist broker like us can add value. We have established relationships with a wide range of funders and an understanding of their risk appetites, which allows us to benchmark cases effectively and connect you with the most suitable options.

Option 3: ATE insurance only

ATE (After-the-Event) insurance offers plaintiffs protection against the risk of adverse costs in the event their case is unsuccessful. It is available as a standalone product for matters with levels of cover starting from $100,000.

This option is ideal for clients who can cover their ongoing legal costs and disbursements but want to mitigate the financial risk of an adverse costs award if the case does not succeed. Additionally, coverage can be extended to include up to 50% of their own costs and disbursements.

Think about which of your clients might benefit from this tailored risk management tool. It’s not a solution for everyone. This option suits clients who can fund their ongoing costs independently but prefer to avoid full exposure to risk or having it reflected on their balance sheets, without needing to share proceeds from the case.

Option 4: ATE insurance and recourse funding

A further option for risk management combines ATE insurance with recourse funding.

We collaborate with providers who offer disbursement funding solutions tailored for law firms, particularly those managing large volumes of lower-value cases. These arrangements are designed to support litigation departments in managing their case-related expenses efficiently.

We are also exploring opportunities to integrate ATE insurance with partnerships involving traditional financial institutions to address a portion of the client’s own costs and disbursements. This combination may present an appealing risk management strategy for certain clients.

Option 5: Judgement Preservation Insurance (JPI)

JPI provides cover for either plaintiff or defendant once a case has been heard at first instance and a judgement handed down. It is a specialised insurance policy designed to protect the value of a legal judgment or arbitration award during the period in which an appeal or enforcement is pending. It mitigates the risk of a judgment being overturned or reduced on appeal, providing financial security and stability to the judgment holder.

Summary

Litigation finance can be a valuable tool to consider for all matters, regardless of their size.

ATE insurance and third-party funding (TPF) are flexible options that can be arranged at any stage, from the beginning of the matter to just before trial.

However, it’s worth noting that client interest typically increases as the trial approaches, whereas insurer and funder interest tends to decrease during this time, often leading to less favorable terms.

This highlights the importance of informing your clients about their risk management options early in the process. Providing clarity on these options at an earlier stage can help them make well-informed decisions and secure better outcomes.

While this article focuses on ATE insurance and TPF, there are additional litigation risk management policies available that may suit certain cases, though these fall outside the scope of this discussion.

If you’d like to explore these tools further, or discuss tailored options for your client or case, please don’t hesitate to reach out to a member of our team.