Are Canadian in-house legal teams and law firms ready to embrace commercial litigation insurance products? A new entry to the market thinks so and says such litigation finance options could help turn some in-house teams into profit centres.
Late last week, U.K-based litigation finance company TheJudge announced it has opened offices in Toronto and Vancouver. The company, which has been in business since 2000, primarily in the U.K. and in New York and California, has set up shop with an existing litigation insurance provider to the Canadian market.
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“We’ve always had our eye on Canada as a place with a similar legal system to the U.K. and for us the opportunity is very similar in terms of cases and types of clients interested in our products,” says Matthew Amey, director at TheJudge’s head office in London.
In the U.K., TheJudge has been arranging adverse costs insurance (also known as after-the-event insurance) and brokering litigation funding. The company entered into an agreement with legal expense insurance boutique broker Justice Risk Solutions to acquire its business and it has now become the Canadian office of TheJudge.
Justice Risk Solutions specialized in arranging adverse costs, disbursement financing and after-the-event insurance in the personal injury and medical malpractice arena.
“They had the presence in Vancouver and we see it as a very interesting marketplace,” says Amey. “We plan to introduce ourselves to as many Ontario litigators as we can, expecting that Toronto may yield some early successes, but certainly Vancouver will be just as interesting in the short term.”
Legal expense insurance specialist and lawyer Nick Robson will join TheJudge Canada as vice president and general counsel, along with Scott Smith, who has a long-standing career in complex insurance structuring. As well, Simon Tucker, who was formerly an underwriter at specialist legal expenses insurer DAS Canada, will serve as an associate director at TheJudge Canada.
“Arbitration counsel is an area we think we will find a quick and positive response from because, with Toronto as a hub for dispute resolution, it is hoping to increase its profile in the arbitration world and I think funding and insurance options always serve to help arbitration communities develop and expand their role,” Amey says.
In addition to arranging funding and insurance products for commercial litigants, TheJudge will offer a selection of specialized risk products including attorney fee insurance for corporate claimants seeking a “more cost-effective solution to manage legal expenses” as well as contingency fee insurance for commercial litigation law firms seeking to manage risk when engaged on a contingency fee basis.
But it’s the possibilities such insurance products can offer in-house departments that also has Amey excited about the Canadian market.
Air Canada is a client of TheJudge and in a statement it said: “Air Canada has its share of significant litigation matters that entail a high expenditure on fees and disbursements. While we have the ability to self-fund, in some circumstances, we might prefer to hedge the economic risk of a negative outcome. In these situations, we find litigation insurance to be a very cost-effective way of hedging our risk.”
While Amey admits it may take some time to get in-house departments interested in what TheJudge has to offer, those who have immediate need for such insurance products are practising law firm litigators and arbitration lawyers.
“If you take in-house counsel, who increasingly in the U.K. come to the funders and insurance market and people like us as brokers directly, increasingly, GCs have become more sophisticated in what these options are from a finance perspective at an early stage in the case,” says Amey.
He thinks that while corporations and general counsels still have a level of reticence toward giving up control to funders out of concern that a party might influence any decision in relation to litigation, they may view insurance products differently.
“Insurance is a much more passive product and to that degree I think the Canadian in-house experience will be similar to what we see in the U.K., which is an openness to insurance options,” he says.
The other major development in the U.K., says Amey, is that many in-house teams are being asked whether these insurance products can turn them into profit centres instead of cost centres.
“This idea that you might have repeat litigation of a certain type that can actually produce recoveries through the legal department, because for whatever industry they are in they may have found themselves exposed to certain types of disputes. If it’s a regular occurrence they can bring those recoveries in a way that has very little risk to the organization and turn them into a profit centre,” he says.
While litigation funders provide equity style investments in a case by way of payment for legal fees in return for a share of the proceeds of a case, TheJudge is an insurance broker that doesn’t actually fund or insure the cases itself. It takes the requirements the claimant might have, looks at the cash flow needed and risk management requirement and then sets out to construct the most efficient way for a claimant to pursue that particular litigation.
“The difference between insurers and funders is the insurers don’t pay the costs as the case goes along as a litigation funder would,” says Amey.
“It all comes down to the cash flow of the business and liquidity of the business as to whether it needs to go to funding and if it doesn’t, then in my opinion, most GC would opt for insurance,” he says.
Amey says TheJudge sees quite a bit of litigation arising from energy disputes and from the financial services sector. For example, in the U.K., there have been claims against banks for misselling of particular structured products.
“Very often, the people who come to us are the smaller parties who are more constrained in relation to their cash flow and maybe hesitant about bringing a litigation claim against a bigger, more well-resourced opponent,” he says.
There are some areas of law TheJudge doesn’t provide products and most are business-to-business disputes.
“There isn’t really a restriction as to what we will look at, but we won’t look at family disputes or criminal disputes,” he says. “If commercial-oriented, we can generally look at such as securities claims and competition claims.”
Amey notes the “growing personal injury insurance” particularly in relation to adverse costs and disbursements that clients incur when they bring claims.
“We basically provide solutions to law firms to cover those risks for their clients,” he says.