Over the past decade, litigation finance has transformed from a niche investment strategy into a multi-billion-dollar global industry. Today, funders regularly commit significant capital to a broad range of legal matters, spanning jurisdictions, sectors, and deal structures. With this evolution comes an increased need to protect that capital and improve financing efficiency, particularly in high-stakes or long-duration claims.

Capital Protection Insurance is a specialised solution that provides funders, corporates, and law firms with a mechanism to safeguard litigation investments against the risk of adverse rulings. For forward-thinking funders, it also enables access to additional leverage at more competitive rates, reducing the cost of capital and increasing deployment potential.

What is Capital Protection Insurance?

Capital Protection Insurance is designed to cover the capital invested in a case (or a portfolio of cases) should the litigation be unsuccessful. If a funder loses their investment due to an adverse outcome, the insurance policy reimburses them, typically up to 100% of the capital at risk. It works in a similar way for lawyers, who seek to protect some or all of their work in progress (WIP) on contingent matters.

Importantly, these policies can also be ceded to third-party lenders. This feature allows funders to secure back leverage i.e. third-party financing secured not by the underlying merits of the litigation, but by the robustness of the insurance itself. This structure is increasingly attractive for corporates and law firms looking to unlock the value of their legal claims without assuming disproportionate financial risk.

When can it be used?

One of the key advantages of Capital Protection Insurance is its flexibility. It can be deployed at virtually any stage of litigation so long as the funder has already committed capital, or the law firm has started to incure WIP. This means it can support early-stage investments or be introduced later to hedge risk or enhance leverage options.

How does Capital Protection Insurance work?

Capital Protection Insurance follows a structured underwriting process:

Risk assessment: The insurer conducts a detailed review of the case or portfolio, analysing legal argument, factual strength, procedural posture and of course counter-party credit / enforcement risk.

Due diligence engagement: The insurer engages directly with the litigation funder, law firm, and in some instances, the claimant to address key questions and understand their litigation strategy.

Policy structuring: If the insurer is satisfied that the risk is insurable, it will propose tailored policy terms and pricing. Where applicable, the insurer can collaborate with lending partners to facilitate third party back leverage.

Execution: Most policies require no deductible or self-insured retention. A one-time premium transfers the entire capital-at-risk exposure to the insurer.

Alternative funding with Capital Protection Insurance

Capital protection insurance can be effectively supported by a range of third-party funding mechanisms designed to enhance financial efficiency and reduce litigation or enforcement risks. One such mechanism is non-recourse third-party litigation funding, which enables insured parties, such as investors, funds, or corporates to pursue legal action without deploying their own capital.

This off-balance sheet funding structure allows resources to be allocated more strategically, ensuring legal teams can act decisively without compromising protected capital. Because the funding is non-recourse, the risk of loss remains with the funder, while the insured party retains the security of its initial capital.

In scenarios where full litigation funding may not be cost-effective, such as cases with modest financial stakes, After the Event (ATE) insurance offers an alternative. ATE insurance can cover legal disbursements and professional fees, allowing claimants to manage litigation risk without putting protected capital at risk. This approach is particularly beneficial for policyholders seeking to preserve cash flow while still pursuing valid claims.

In combination, these funding options can enhance the effectiveness of capital protection insurance by reducing litigation exposure, securing outcomes, and enabling strategic allocation of resources.

Why choose Annecto Legal?

Annecto Legal helps provide specialist support to businesses, investors, and legal teams seeking to maximise the value of capital protection insurance through smart, complementary funding solutions. With deep expertise in litigation funding and insurance structuring, Annecto is uniquely positioned to help clients safeguard their capital while still pursuing strategic legal or financial outcomes.

We provide our services to a range of clients. Contact an expert member of our team today to find out more about Capital Protection Insurance and alternative funding options. Annecto Legal is registered in England and Wales.

Get in touch with us today on 0800 612 6587 or by using our contact form below.