Contingent Risk

Contingent Risk Insurance, also known as Litigation Risk Insurance, is an advanced risk management tool customized to protect against known, identified risks. Contingent Risk Insurance can be used to either cap maximum exposure for identified legal risks on the liability side, or insure a core value to a pool of legal rights or claims on the asset side. The resulting A-rated protection then can be used as a financial tool for a variety of transactions—reducing escrow, backstopping investments, restructuring debt, monetizing legal assets for strategic use, etc.

Any business that periodically or regularly faces potential legal exposures and/or possesses an interest in legal assets should consider the financial enhancements that contingent risk insurance can offer:

• Private equity groups, strategic corporates, potential M&A sellers, and corporates seeking to attract additional debt or equity investment are common purchasers of contingent legal liability insurance.
• Law firms, IP rich companies, large corporates with significant claimant side litigation, and alternative capital, family offices, and other strategic investors are common purchasers of legal asset insurance.

Identified contingent legal exposures can be capped with A-rated insurance, and the policies tailored to a variety of situations:

• Capital Release – insuring a lingering exposure to allow for release of trapped capital, such as escrow, trust, or fund winddown.
• M&A Seller Policies – insuring an identified risk that will not be picked up by RWI or W&I before going to market, to better position Seller and attract wider interest from buyers. Can be pre-filing or post-filing of a legal action.
• M&A Buyer Policies – when legal exposures are identified in diligence, Buyer can cap bad outcomes to support deal economics, including satisfying or enhancing bank capital in a debt-financed deal. Can be pre-filing or post-filing of a legal action.
• Successor Liability – in an asset transaction where there are identified contingent liabilities being left behind with OldCo, insurance can insulate NewCo from a future successor liability claim and better support OldCo from outsized results as well in further support of the transaction.
• Alter Ego – when a sub, parent, portco, or holding co is concerned about veil piercing, a policy can insulate the corporate from liability in the event a alter ego claim is brought in the future.
• Regulatory – when an interpretation of an applicable regulation can have severe impacts to a corporate if they’re wrong, a policy can be placed to insure against the risk.
• Permitting – when an investment depends on permitting and other approvals, in the right situation a policy can be placed to protect the investment from downside risk.
• Other Bespoke – as long as the likelihood of the amount of exposure targeted by insurance is low, and the risk can be reasonably underwritten, a liability policy can be placed to solve almost any legal risk. Indemnity exposure, minority-objector risk in a transaction, contractual risks, etc. are all potentially insurable in the right contexts.

The central concept of a legal asset portfolio wrap is simple—insurers underwrite to a pool of legal assets and insure that core value will be returned within a specific time period. But this solution can be tailored in a variety of ways to solve for specific needs and strategies:

• Law Firm Wraps – insuring a core value to all or a specific pool of a law firm’s contingency fee cases will return $X over Y period of years.
• IP Portfolio Wraps – whether a tech company is divesting a patent portfolio or another IP rich company is seeking to enforce its patent rights, a diverse patent portfolio can be insured a minimum outcome over a period of years, supporting the transaction and/or investment.
• Corporate Wraps – if a corporate has a number of active or potential legal claims, a minimum outcome can be insured, supporting the legal expense investment and/or accelerating monetization.
• Investor Wraps – investors in litigation assets can wrap a core value to their investments, allowing for greater deployment of capital and/or lower cost of capital.
• Fund Wraps – principal protection + premium costs and management fees can be insured on a prospective basis for a new fund, with creative premium and deployment structures.
• Secondary Market Wraps – when an acceleration of liquidity is needed for later stage assets, a portfolio wrap can guarantee a minimum value to the collateral and enhance a transaction for either/both buyer and seller.