Big litigation losses have slammed the market for insuring court awards, leaving potential clients with narrower coverage options and premium costs that have as much as doubled.
The most recent example of industry carnage was a judge on Oct. 10 slashing Quinn Emanuel's fee for the law firm's work on a case to $92.4 million from $185 million. Quinn had an insurance policy guaranteeing about 90% of the original fee, leaving underwriters potentially on the hook for about $75 million.
As a result of such losses, policies are being quoted to cost around 17% or 20% of the insured award, up from around 10% a year ago, said Charles Agee, chief executive 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."
Quinn Emanuel did not respond to a request for comment.
The losses have taken some of the luster 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.
Along with the Quinn case, insurers are 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, Insurance Insider reported.
In one of the larger losses this year, insurers covered between $500 million and $750 million of a $1.6 billion judgment against IBM Corp. in April. In the wake of that ruling, Liberty Mutual Insurance Co., which covered between $100 million and $150 million of that policy, backed out of at least two potential litigation insurance deals, Bloomberg Law reported.
The losses have raised the cost of the 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's higher prices and lower limits, not as much capacity, and underwriting guidelines have gotten much stricter."
The amount of losses in recent months would have been difficult to manage at any point, the person added, even if it was two years down the line.
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, chief executive officer 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."