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Litigation Risk Insurance and Funding

Litigation Risk Insurance and Funding

litigation risk insurance

In the landscape of business and commerce, companies often find themselves navigating complex legal issues where litigation risks can occur. The prospect of legal disputes can be daunting, posing potential financial strain, reputation damage, and operational disruptions. In response to these challenges, businesses turn to a strategic financial tool known as Litigation Risk Insurance (LRI).

Litigation risk insurance is a specialised form of protection insurance designed to mitigate the financial impact of legal proceedings. Whether arising from contractual disputes, regulatory investigations, intellectual property conflicts, or other legal challenges, LRI provides a safety net for companies seeking to safeguard their assets and preserve their bottom line.

Considering that commercial litigation can result in substantial costs, it is crucial to be well-informed about funding and insurance options to ensure a cost-effective approach to dispute resolution. At Annecto Legal, we can aid clients in finding funding and insurance coverage, providing peace of mind.

Financial risks of commercial litigation


When deciding whether to pursue legal action, the most important considerations often revolve around the financial implications of being liable for the legal costs of both sides if the case isn’t successful. It is essential to factor in the legal costs associated with the legal services in commercial litigation, as these can profoundly impact a business.

However, just as in any aspect of business, there are numerous avenues for financing projects and mitigating risks through tools like litigation risk insurance and litigation funding. Through the employment of effective litigation management strategies, businesses can deflect both the costs and risks away from their balance sheet in the event that their case proves unsuccessful. The only financial component that remains is the ‘contingent asset’—the funds received in the event of a successful outcome to cover costs and damages.

The associated management time relating to any commercial litigation claim can be seen as a good return on investment when the right funding and insurance tools are in place.


Litigation risk insurance and funding options


If a business dispute does arise, it can lead to high levels of legal costs. Fortunately, there are funding and insurance options available to assist when conducting litigation in a cost-effective manner. These methods include:

ATE insurance

After the event (ATE) legal expenses insurance is taken out after the event that has led to a dispute has taken place, to protect you in the case of your claim being unsuccessful. ATE insurance can protect you from paying your opponent’s legal costs should your claim not be successful.

However, ATE insurance is not free, and it is important to remember that if your case is successful, you may have to use some of your damage award to pay the cost of the legal fee insurance premium, which will be included in the terms and conditions.

After the Event insurance is often used in conjunction with a Damages Based Agreement, or third party funding.


Third party funding

One funding method that is commonly used for business disputes is third party funding. Third party funding acts as a form of non-recourse financing for litigation. Third party litigation providers take on the financial risk of litigation so that clients can pursue a claim without having to worry about the legal fees associated with it.

In return for taking the risk, the litigation funder will typically seek a share of the proceeds in the region of a fifth to a third of any damages recovered. This means that you keep up to 80% of the reward, having taken none of the risk. If the claim is unsuccessful, the funder will lose their investment.


Damages based agreement 

damages based agreement (DBA), also known as a contingency fee agreement, is a type of arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of potential pending litigation. In return, the solicitor will be paid a percentage sum of the damages recovered as long as the client’s case is successful.

DBAs provide that, instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the case is successful. Therefore, these types of agreements allow clients the opportunity to pursue a case without having to worry about the solicitors’ fees associated with it. In some circumstances, however, fees for Counsel and other disbursements may still be payable by the client.


How can Annecto Legal assist?


In business dispute cases, getting the right advice early without spending an excessive amount on legal fees is the best way to save money and protect your position.

Annecto Legal helps clients realise the value of their commercial disputes. We work closely with litigation funders, insurers and law firms that seek alternatives to the traditional hourly rate funding model.

We can assist with a variety of cases including intellectual property disputes, breach of contract, shareholder disputes and more.

If you have been involved in a dispute, get in touch with an expert member of our team to find out which litigation cover is the right litigation funding option for you to reduce your commercial litigation costs.

Get in touch

* Annecto Legal can only assist on case where the loss is in excess of £100,000, with the exception of data breach claims. If you need assistance on a claim worth over £100,000, please get in touch using our form or the details below:

Registered Office

Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS


0800 612 6587


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