Article by David Hechler
There’s been a lot of talk about third-party litigation funding in recent months. The industry seems to be doing well – business is apparently booming. And that success has inspired a new entrant into the marketplace.
But what’s new isn’t the company. It’s the product the firm has introduced. The firm is offering a kind of insurance.
The company is called TheJudge, and it’s based in London. TheJudge has been quietly funding litigation in the U.S. for several years now. But in June, it cleared its throat and announced that it was formally launching its U.S. business. And it wouldn’t mind a drumroll and cymbal crash, thank you.
TheJudge offers the same kind of third-party litigation funding that Burford Capital, Gerchen Keller Capital and Juridica Investments Ltd. do. But the new wrinkle is attorney fee insurance.
It brokers this product for corporate clients who are acting as plaintiffs and hire lawyers on an hourly-fee basis. Policies cover the billable hours the companies pay or their out-of-pocket costs or both. And the premiums are usually contingent on the success of the litigation, “which means the plaintiff only pays the insurer a premium if its case succeeds,” according to the company’s press release. And “the premium charged by insurers is usually significantly less than the cost of third-party funding.”
“If the plaintiff loses,” the statement continues, “the insurer pays the claim and receives no premium, however the plaintiff corporation is reimbursed for the fees and costs incurred in pursuing the claim, up to the policy coverage limit.” So it’s a hedge against losing.
There’s also a similar product for law firms: contingency fee insurance “to help law firms mitigate the risks.” The press release states: “TheJudge brokers policies with large specialist international insurers who can insure 40 to 70 percent of a law firm’s budgeted legal fees in the event that the case is lost.” Again, the premium is due only if the law firm is successful in collecting.
TheJudge has already opened an office in New York. Its U.S. headquarters will be in Los Angeles and should be operational by the time you read this, according to James Blick, who heads the U.S. operation.
In the United Kingdom, losing parties often pay for the cost of litigation. So the concept may be particularly useful there. But with a few exceptions, we don’t have the same fee-shifting scheme in the U.S. So the products may not prove as popular here.
Third-party funders have drawn criticism for a lack of transparency. I wondered whether their involvement in cases would have to be disclosed to opposing parties and judges. There have also been questions about control. How much influence would the insurers exercise over the plaintiff’s decision-making? What if a plaintiff wanted to settle? Would TheJudge or the insurance company have a say in the matter – or even a veto? And if the products TheJudge is brokering are, in fact, insurance, would they be subject to all of the rules and regulations that apply to that industry?
I called TheJudge’s Blick to ask. He had answers, but not for everything. And he acknowledged as much. He didn’t come across as a sugarcoater.
TheJudge has been brokering attorney fee insurance for corporate clients in the UK for 15 years, Blick noted. In fee-shifting cases there, disclosure used to be compulsory, he said. It no longer is, but it’s still common. He can’t say what will happen here. Some of the same insurance carriers are moving into the U.S. market, so they may continue the practice. Even though it isn’t required, “it may be good practice,” he added.
As for insurance regulations, he was quick to answer that question. The product they’re selling is insurance, and it will be subject to “the same regulatory framework” as any other kind. He was equally clear about the issue of control. “Insurance companies cannot control the decision-making when it comes to settlements or any other aspects of the litigation,” Blick said. “There’s no control whatsoever.”
When I asked him why his company was expanding its U.S. presence, and why now, Blick quickly warmed to the subject. “We have been involved in, and have been observing, the rapid growth of the U.S. litigation financing market,” he said. It’s actually a global phenomenon, he noted, but it’s growing quickly here. In the UK, litigation insurance outstrips litigation financing significantly if you’re comparing the number of cases. Why wouldn’t the U.S. market find this option equally attractive?
Since the litigation insurance market is growing, and they were looking for more outlets, enhancing the U.S. business seemed like the obvious solution. Time will tell if they’re right.