Contract Litigation Insurance (CLI) is designed specifically to insure against the risk of paying an adversary’s attorneys’ fees if unsuccessful in a contract lawsuit. This risk can arise through a prevailing party provision (also known as a “loser pays” or “fee shifting” provision) in a contract or based on a “loser pays” statute. By insuring against this risk, your client will be able to gain more certainty in the otherwise uncertain process of litigation.
HOW REAL IS THE RISK?
Litigation is a significant risk for those of your clients in a lawsuit. Understanding the financial risks your clients face will help you better meet their risk mitigation needs. The obligation to pay a fee award comes at the end of the case when your clients assets are most depleted. This expense, which is typically unplanned for, can send your client into financial ruin or destroy their business. And with 66% of defendants and 33% of plaintiffs losing at trial, the risk is not only serious but very real.
FILL A GAP AND REDUCE RISK
CLI is the only policy that insures the risk of paying an adversary's attorneys' fees. In fact, standard insurance policies specifically exclude coverage for this risk. By removing the threat of having to pay an adversary’s attorneys’ fees, insureds are able to make better decisions in their lawsuit.
PRICING AND UNDERWRITING
Because all business is done through contracts and most contracts contain a loser pays provision, investigating CLI coverage should be a part of every litigation risk assessment. CLI coverage must be purchased within the first 12 months of a litigation. The policy covers the life of the lawsuit. The premium is fully earned, with a one‐time payment and no deductible. CLI policies are offered through a tiered pricing structure that is tied directly to the increased level of risk reflected in key stages of the lawsuit.