Contract Litigation Insurance

Contract Litigation Insurance Reduces Financial Risk for Litigants
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Financial Risk for Litigants

Contract litigation is a risky business. Trial outcomes for litigation involving contract disputes can be unpredictable and the proceedings are often complex. And just because you think you’re right doesn’t mean you’re going to win. In fact, the Bureau of Justice Statistics has found that 33 percent of plaintiffs and 66 percent of defendants lose their contract disputes at trial. More often than not, what starts as a clear-cut case is soon up for grabs, accompanied by mounting legal fees.

The financial risk is only heightened when there’s also the possibility of having to pay your adversary’s attorneys’ fees, should you lose the case. Contract Litigation Insurance (CLI) is a first-of-its-kind program, specifically designed to protect litigants from having to pay their adversary’s attorneys’ fees as a result of a fee shifting provision in a contract dispute. Underwritten by Zurich, an A+ A.M. Best*carrier, CLI removes much of the uncertainty from litigation, allowing litigants to feel more secure about their risk, while supporting an attorney’s desire and professional responsibility to protect clients from financial exposure.

CLI helps provide:

A reduced financial exposure in litigation

A budget certainty

A closure of a gap in a litigant’s coverage

And because a CLI policy removes the threat of having to pay an adversary’s attorneys’ fees, the protection it offers becomes empowerment, allowing litigants to proceed with a case, as well as becoming a strategic asset in settlement.

An Innovative New Litigation Insurance Product

Contract Litigation Insurance lets you avoid the risk of paying the adversary’s attorney’s fees in contract litigation. Often contracts contain a “fee shifting” or “prevailing party” provision, stating that the winning party is entitled to recover their attorney’s fees (and other costs) from the loser. CLI is available to both plaintiffs and defendants who wish to manage their litigation risks arising from such provisions.

How the Policy Works

Like many other kinds of insurance coverage (such as healthcare, automobile, or homeowner), CLI charges a premium for the coverage requested and pays a claim to the insured party if a loss occurs. Since a CLI policy is not issued until a contract litigation complaint has been filed, a party does not purchase insurance protection until they are actually exposed to a definite risk. Policy coverage lasts until the covered litigation ends. By purchasing a CLI policy, the policyholder is able to successfully insure against payment of an adversary’s attorney’s fees award.

Availability of a Contract Litigation Insurance Policy

Any litigant in a breach of contract lawsuit may purchase or apply for a CLI policy. The most cost effective time for a Plaintiff to apply for a CLI policy is within the first 60 days of the initial filing of the
lawsuit (the “optimal purchase period”). The most cost effective time for a Defendant to apply for a CLI policy is within 60 days of service of the complaint (the “optimal purchase period”).. After these optimal purchase periods have expired, an applicant may still apply for CLI coverage but the price to procure coverage may increase and the ability to place coverage may decrease.

Excellent Support and Prompt Claims Service

A team of experienced insurance professionals and attorneys developed CLI based on their thorough knowledge of the risks of contract litigation. Based on their experience, the team understands the importance of responsive services, especially when a party is facing an adverse judgment and an application for attorney fees. Every policyholder can depend on the knowledge, guidance, and informed support of our team, including support on selecting coverage along with prompt claims processing.

FAQ

What Coverage does the Policy Offer?

Contract Litigation Insurance lets you avoid the risk of paying your adversary’s attorney’s fees in contract litigation. Often contracts contain a “fee shifting” or “prevailing party” provision stating that the winning party in litigation is entitled to recover their attorney’s fees (and other costs) from the loser. CLI is available to both plaintiffs and defendants who wish to manage their litigation risks arising from such provisions.

When can a Litigant Purchase or Apply for a Policy?

Any litigant in a breach of contract lawsuit may purchase or apply for a CLI policy. The most cost effective time for a plaintiff to apply for a CLI policy is within the first 60 days of the initial filing of the lawsuit. The most cost effective time for a defendant to apply for a CLI policy is within 60 days of service of the complaint. After these optimal purchase periods have expired, an applicant may still apply for CLI coverage but the price to procure coverage may increase and the ability to place coverage may decrease.

What is Required for a Policy Application?

Applications are evaluated on an individual basis. The requirements include:

1. A “file stamped copy” of the complaint displaying the date on which the complaint was filed;

2. A copy of the underlying contract;

3. A completed one page CLI policy application

What is the Appropriate Amount of Coverage?

It is impossible to know how much your adversary will spend on litigation. However, it is usually safe to assume that your opposing party hires comparable counsel they will spend roughly the same amount on legal fees as you do. Contact us for a list of typical questions to consider when evaluating how much
coverage you need.

What is the Duration of the Coverage?

The coverage lasts the duration of the covered litigation. When the covered litigation terminates, the policy expires. What Triggers the Policy?

At the close of a trial or contested summary judgment, the opposing party must be found to be the prevailing party. The policyholder will then be ordered by the court to pay attorney’s fees for the opposing party.

Do I Already Have Coverage From My Existing Policies?

No. You may already have a commercial general liability policy (“CGL”), errors and omission policy (“E&O”), or other insurance that can cover certain defense costs. However, these coverages do not protect against the financial exposure of having to pay an adversary’s attorneys’ fees.

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