The market for insuring court awards has been hit hard by recent big litigation losses, which has resulted in potential clients having fewer coverage options and premium costs that have doubled in some cases.
A recent example of the industry’s struggles was a judge on October 10th who reduced Quinn Emanuel’s fee for their work on a case from $185 million to $92.4 million. Quinn had an insurance policy that guaranteed about 90% of the original fee, leaving underwriters potentially responsible for around $75 million.
As a result of these losses, policies are now being quoted at around 17% to 20% of the insured award, up from around 10% just a year ago, according to Charles Agee, CEO of litigation funding advisory firm Westfleet Advisors.
“It is just harder to get the risk insured,” Agee said in an interview. “Large losses are causing insurers to reassess their risk appetite.”
The losses have taken some of the shine off a judgment preservation insurance market that surged in popularity at the start of the decade. The insurance policies are popular with plaintiffs who want to protect their trial court awards before the judgments can be reduced or reversed on appeal.
Judgment preservation insurance providers, including HDI Global Specialty, Lockton, and Certum Group, have been playing a growing role in the broader $13.5 billion litigation funding industry. Brokers, including Aon, CAC Specialty, and Willis Towers Watson Plc, have sold the products.
Much about this corner of the insurance business is a mystery. Plaintiffs that win big awards generally don’t need to disclose if they purchased judgment preservation insurance. Likewise, insurers don’t disclose their coverage in individual cases, except for rare instances.
The existence of insurance in the Quinn Emanuel case is known only because the policy was made public during litigation. There are several insurers backing Quinn’s policy, though the names of the companies are blocked out in court documents.
In the underlying case, Quinn had won billions for health insurers who successfully argued the US wrongly denied making payments promised by Obamacare.
Insurers are also anticipating a loss stemming from another recent decision. The US Court of Appeals for the Eighth Circuit last month reversed a $564 million verdict against BMO Bank related to its involvement in a Ponzi scheme run by Tom Petters. The industry expects to pay out at least $80 million in insured losses from the case.
The losses have raised the cost of policies and left insurers wary of covering large individual awards, according to one industry source who requested anonymity to discuss judgment preservation insurance.
“I wouldn’t say it is dead, but it’s going through a massive shift,” the person said of the insurance. “There are higher prices and lower limits, not as much capacity, and underwriting guidelines have gotten much stricter.”
While the string of losses is the first such shake-out for the nascent judgment preservation insurance market, the broader retrenching is nothing new for insurers, said Byron Sumner, CEO of Ignite Specialty Risk, which provides litigation insurance.
“Insurers are responding, and attaining coverage is unlikely to ever be as easy as it was recently in the last 12 months,” Sumner said. “However, I also don’t believe it will always be as challenging as it has become because insurers will regain their appetite for the class once the market demonstrates an attractive level of profitability.”
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