Contract Litigation Insurance is a recently embraced concept. Only a handful of insurance companies in the United States and Europe offer such a product.
The vast majority of business lawsuits are settled out of court. Why? Most business lawsuits that end up going through the full justice process from demand letter to judgment will end up costing anywhere from $70,000 to $100,000 according to industry figures. That’s just a typical case. Larger, longer and more complicated cases can easily start out at $125,000 for a full trial.
The pressure to settle, and resolve a case early is absolutely tremendous.
Then we have the attorney ‘fee shifting’ clauses.
This tool is a double edged sword. In some scenarios, when one party is forced to pay for the legal costs of the other side, popular opinion might hold that justice was done. These scenarios can also ward away frivolous litigation.
Other times, completely legitimate cases or damages may go undefended, due to the concern of paying the other side.
Businesses using various legal insurance is nothing new. This helps business move forward confidently without worrying that a routine industry-related hazard (like unlicensed creative lawsuits for marketing firms) or hazards that all businesses face (like Worker’s Compensation Insurance) will cripple them.
Now, Contract Litigation Insurance is a policy that will pay for the other side’s attorney costs, if granted by a judge. This could allow a plaintiff to bring a case that has merit, without worrying about being financially decimated if they lose. Additionally, one does not need to buy the insurance before a case is filed. Rather, after the filing, the insurance companies will use that information to assess whether and how the policy will shape up. Typically, the policy is earned after paying a one-time premium, contains zero deductibles, and is valid for the life of the lawsuit. From our outside assessment, the fee tends to be 10% of the estimated attorneys cost of a full trial.
The Downside
A large percentage of an even larger number can still be quite significant to an individual or small/medium sized business that does not have the funds. It is obviously better than paying the full amount, but one should consult with a lawyer, risk analyst and a business financial advisor when considering.
As always, be sure to consult with an experienced business law attorney before taking any action on matters like these. This blog is for reference/information purposes only and is not legal advice.