3 Questions for a Litigator-turned-Insurance Broker (Part II)

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This week, I continue my written interview with Stephen Kyriacou, Jr., who is a Managing Director and Senior Associate in Aon’s Litigation Risk Group, where he structures and places litigation risk insurance policies. Last week Stephen shared a fantastic example of the existing litigation risk insurance market, including some of the specific challenges inherent in patent litigation risk assessment. This week I’ll go into a little more detail with Stephen about the exciting opportunities for those lucky enough to secure litigation risk insurance.

Now on to the rest of my interview with Stephen. As usual, I’ve added a brief comment to the answers below, but have otherwise presented his answers to my questions as he gave them.

Gaston Krub: What opportunities does litigation risk insurance offer to both lawyers and their clients?

Stephen Kyriakou: Our team at Aon believes it is essential for lawyers – both trial and transactional – to familiarize themselves with the various litigation risk insurance solutions available in the market today. We talk to attorneys all the time who have never heard of this insurance and who have no idea these solutions even exist. My colleague Steven Davidson and I actually wrote an article late last year titled “Litigation Risk Insurance: A Tool That Should Be in Every Lawyer’s Toolbox” to try to address this lack of knowledge among practitioners.

Historically, this knowledge gap was understandable, as these types of policies were not common. But over the past two years or more, the litigation insurance risk market has exploded with activity and the solutions we offer have evolved significantly, becoming more responsive to client needs. I’m obviously biased here, but I think it’s fair to say that we’re now at the point where a lawyer who doesn’t know and can’t advise his clients about litigation risk insurance will be doing his clients a disservice and will be at a disadvantage compared to those attorneys who are well versed in these decisions and can offer that kind of advice and counsel to their clients. This is because this type of insurance can provide a lawyer’s client with a type of comfort that the lawyer himself or herself cannot normally provide in accordance with their professional obligations: that even if they lose a case, the financial impact of that adverse outcome will be limited up to the deductible on their insurance policy and any impact beyond that will be borne by the insurers within the limits of the cover.

Litigation insurance has many potential use cases. On the plaintiff’s side, judgment preservation insurance can lock in the value of the judgment, which can, among other things, result in significant accounting benefits and, as we discussed earlier, can also be used to monetize a judgment in very attractive cost of capital through insurance-backed judgment monetization. And this applies not only to the named plaintiff in litigation, but also to their contingency fee counsel, as we have made a number of appointments where we have insured a portion of a law firm’s contingency fee from a judgment.

On the defense side, adverse judgment insurance typically applies in situations where our client has a strong case but cannot deal with the underlying litigation at this time, meaning the client cannot settle the case on acceptable terms or I may dispose of the case on a motion to dismiss, and winning the merits will take time. Meanwhile, the threat of potentially significant or catastrophic damage prevents doing business. We often see the coverage used to facilitate M&A transactions by allowing companies that are defendants in active litigation (or have been threatened with litigation) to limit their exposure to damages prior to being acquired to very lower cost to the parties than to tax the full damages amount sought by the plaintiffs in locked escrow with compensation. Successor liability and fraudulent conveyance insurance can also be extremely useful in the context of mergers and acquisitions, as can legacy liability insurance coverage when the acquired company is saddled with asbestos, talc or similar liabilities.

GK: As the litigation risk insurance market continues to evolve, the need for intellectual property lawyers to maintain up-to-date knowledge of what is available – either for their firms or for their clients – will become even more acute. It can be difficult, especially for busy attorneys, to take the time to learn all about a new market offering, regardless of how that market offering might be for their practice or their clients. But there are ways to quickly educate yourself. One approach is to assign at least one of the firm’s lawyers to become the go-to person when it comes to underwriting litigation risks—both in terms of staying abreast of market developments, but also in starting and maintaining strong connections with people like Steven who stand ready to help attorneys explore their insurance options. There are other potential shortcuts to consider. What is important, however, is that whatever knowledge gap exists within the firm regarding litigation risk insurance is bridged with all submissions.

GK: What’s the most important thing you’ve learned about the litigation insurance risk market based on the deals you’ve done so far?

UK: The most important thing I’ve learned in the three years or so since I left private practice is that the insurance companies that play in this space, and the solutions that my team at Aon works with those insurers to create, have an incredible ability to be responsive and adaptable to the client’s needs. Many of the solutions we offer—adverse judgment insurance, judgment retention insurance, judgment monetization with insurance, whatever—came about because the client needed some kind of risk management tool and because people in this industry have stepped up to find creative, workable, mutually beneficial ways to meet these insurance capital needs. And once we find something new that meets a customer’s needs, it often tends to be replicated and become the market standard.

We see this creativity in meeting the needs of clients in some of the insurance policies that we bind that do not fit neatly into the categories of adverse judgment insurance or judgment preservation insurance. For example, we have insured defendants who have lost significant judgments against the risk that those judgments would be upheld on appeal, meaning that insurers were essentially counting on those judgments being overturned. We have also insured claimants in active litigation against the risk of not being able to recover the amount they expect to win, even though these cases are still at a very early stage. We did the same for early-stage litigation funders. Likewise, insurers are already beginning to look to the prospect of insuring not only the principal invested by litigation funders and other investors in litigation-related assets, but also some of the expected growth of those investors. And the portfolio solutions I mentioned earlier, which have seen tremendous growth, are another example of how this industry can quickly adapt to client needs and spread the risk inherent in high-stakes, high-dollar litigation in a way that makes sense for all involved.

It all comes back to being able to sign. As you can probably imagine, working at a company like Aon, which has more than 50,000 employees spread across more than 120 countries, our clients are in every imaginable industry and involved in almost every type of litigation, so we see a lot of different inquiries for insurance coverage of legal risks. Whenever a new opportunity arises, our team of ex-litigators and investment bankers roll up their sleeves and analyze that specific litigation risk to determine if it can be warranted. Ultimately, all we need to get this coverage is a demonstrably strong case and a customer motivation that makes sense, even if the litigation is something we’ve never seen before, or if the type of policy that the customer needs is different from anything that has previously been written by underwriters. This industry and its solutions-oriented participants have proven over the past few years that they are up to the challenge when it comes to finding ways to raise low-cost insurance capital for the various litigation situations our clients find themselves in. .

GK: As Stephen says, all the ingredients are in place for a future explosion in litigation risk insurance penetration. Of course, the process of getting this insurance can be involved, especially the first time, but so is the legal process itself. Over time, I would imagine that firms will begin to develop strong relationships with insurance brokers—and perhaps even with the insurers themselves—just as we’ve seen happen in the litigation finance space. And just as litigation finance deals have changed significantly over the past few years, so too should we expect litigation insurance products to become even more precise and useful for IP attorneys and their clients. It’is still early.

I thank Steven for his insights and collaboration, especially his willingness to educate this audience about the rapidly evolving space in which he and his colleagues work. I wish him success in all his current endeavours.

I’m always open to conducting interviews of this type with other IS leaders, so don’t hesitate to contact us if you have a compelling perspective to offer…

Please feel free to send me comments or questions at [email protected] or via Twitter: @gkroub. Any suggestions or thoughts on topics are welcome.


Gaston Krubb lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLCintellectual property litigation boutique and Markman Advisors LLC, a leading patent advisory firm for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong emphasis on patent matters. You can find it at [email protected] or follow him on Twitter: @gkroub.

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