Insurance For Plaintiffs’ Attorneys Losing A Contingent Fee Case

Q&A With A Co-Founder Of Level Insurance On This Really Unique Product

I have long remarked that the insurance industry does a good job of offering products to address the risks associated with unique and new exposures. I’m referring to legitimate risks — not those silly policies that the media loves to talk about, that provide insurance for things like Liberace’s hands, Tom Jones’s chest hair and Michael Flatley’s legs.

A couple of years ago I did a story on Level Insurance, a then-new company offering one of most unique insurance products I had ever seen: Litigation Cost Protection – coverage for plaintiffs’ attorneys for their costs in the event that a contingency fee case ends in a defense verdict.

The concept is simple. A lawyer-policyholder takes a case on a contingency fee, it goes to trial and there is a defense verdict. He or she can now recover their cost disbursements, such as expert witness fees, travel expenses, court reporter fees, trial exhibit costs and all other monies spent in furtherance of the case. The policy does not use qualifiers like reasonable costs. The attorney is reimbursed for whatever was spent. If the case settles or is disposed of on summary judgment, no coverage is owed. The online application process takes minutes and the premium is simple – 7% of the coverage limit regardless of the type of case (exclusive of taxes and fees). The limits available are between $3,500 and $250,000.

Litigation Cost Protection recently received important regulatory wins that will no doubt make the policy more attractive to potential purchasers: The Bars of Florida and North Carolina both issued ethics opinions stating that a lawyer can purchase the policy and include the premium in the costs charged to the client following a settlement or win at trial. To do so, both opinions made clear that the lawyer must follow several proscribed steps, which include making certain disclosures to their clients.

I recently checked-in with Level Insurance co-founder Larry Bassuk to see how things have been going for the company and its Litigation Cost Protection. To learn more about this really unique product, what it took to get it off the ground and the challenge of finding an insurer, willing to underwrite a policy for the benefit of plaintiffs’ lawyers, check out my Q&A with Larry here.

1. What was your lightbulb moment for Litigation Cost Protection?

I was inspired by a mentor to explore innovative business opportunities within the legal industry. As a practicing trial attorney, the law ‘business’ is the one I know best. As I brainstormed opportunities, I noticed that finance and insurance tools, which are routinely leveraged in other industries, were largely unavailable to attorneys. This observation lead to the idea that an attorney’s financial exposure in a contingency fee relationship could be mitigated with insurance. It was just a matter of applying established insurance principles to that particular risk.

I approached Justin Leto, who is now my law and business partner in several ventures, with the raw concept. Justin was a solo practitioner at the time, and is a very business-savvy attorney. We refined the concept and embarked on the extremely fulfilling experience of turning our theoretical ideas into a national business.

2. The road from concept to market must have been a challenging one. Can you describe what that journey was like. 

It was indeed a challenge, however, the experience has been extremely rewarding. There were essentially three stages to taking the concept to market. First, we had to validate the concept [of insuring case costs] and establish that it could serve as the premise for a viable insurance program. We then worked with a prominent actuarial consulting firm for nearly one year for the purpose of gathering, analyzing and interpreting the data and ultimately modeling the risk. As a result, we had something concrete and substantiated that we could present to insurance carriers. The decision to work with actuaries early on, although it took a lot of time, effort and resources, was a critical decision.

Armed with what was, in essence, the structure of the insurance program (risk modeling, pricing, assumptions, etc.) and extensive market research, we then shopped the coverage to national insurance companies. The carriers (largely household names) were intrigued by the coverage and recognized its potential, however, many were concerned or downright turned off by the notion of providing insurance coverage to trial lawyers. This part of the process was very challenging. We ultimately teamed up with an exceptional carrier partner, Aspen Specialty Insurance Company.

Next, we had to build the business itself. This included raising money and building out a fairly sophisticated, online-based underwriting and payment system (our entire process has always been 100% online and only takes a few minutes). We created and then built our brand, Level Insurance, and deployed a national marketing campaign to promote the business, which is something we still engage in daily.

3. LCP is such a unique idea. Has that been a challenge to selling it?

Educating our market has been a challenge. No matter the idea, reaching the market and competing for customers’ attention is an ongoing process. Because Litigation Cost Protection is a new concept, when attorneys first learn about it they often respond with equal parts curiosity and skepticism. Since Justin and I are both practicing attorneys (along with Lindsay Milstein, who joined Level about a year ago), we are able to explain the coverage in ways that our customers understand. We can answer hyper-technical questions, which increases each potential new customer’s confidence.

Ultimately, once we have someone’s attention, we are met with enthusiasm and have been very successful in acquiring new customers.

4. How have plaintiffs’ attorneys been using LCP?

First and foremost, trial attorneys are using Litigation Cost Protection like they use all other insurance coverage—to mitigate their risk and to gain peace of mind. We routinely sell $250,000 policies back-to-back with $10,000 policies, which goes to show that our customers have varying risk appetites and strategies. Some attorneys use Litigation Cost Protection for certain types of cases (for example, all of their product liability cases) while others use it for cases that exceed a certain cost-threshold to litigate. We designed this coverage to be flexible. Attorneys can pick and choose which cases to cover and they customize their limits for each case.

Across the board, I hear that our customers feel more confident litigating their covered cases, feel more comfortable spending money to litigate their cases and overall have more peace of mind knowing that their risk exposure is controlled.

We enjoy hearing creative ways in which our customers are using their coverage to their benefit. For example, some attorneys are sending their Declarations Page to opposing counsel, with the message that they should inform the insurance adjuster assigned to the case that the plaintiff’s attorney has Litigation Cost Protection and is committed to trying the case unless a reasonable offer is made. This has reportedly enhanced settlement negotiations and results.

I’ve been advised that lenders are offering better terms, rates and higher amounts of financing for cases that are backed by Litigation Cost Protection. In fact, after hearing this many times, we included a loss payee endorsement form as part of the application policy, so attorneys can name their lender as a loss payee. This has further facilitated the process and provided value to our customers.

5. How have the sales and claims experience been? 

Although I cannot provide specifics, I’ll share that we have grown from offering Litigation Protection in only five states to offering it nationally. We have sold policies in approximately 35 states and nearly all of our customers have incorporated Litigation Cost Protection into their practice, meaning they routinely obtain coverage. We are proud of our company’s growth and we continue trending upwards. Our claims experience is in line with our projections, and we pride ourselves in handling claims expediently, easily and fairly.

Click here to view the full article.

No Money? No Problem! How Litigation Insurance can Help You Offset the Financial Risk of Litigation (Part 3)

Historically, defendants have obtained insurance policies for litigation cost protection. Industries and professions that are especially litigious often have multi-million liability policies purchased in advance to carry the costs of defending lawsuits and malpractice claims. Meanwhile, plaintiffs and their attorneys who work on a contingency basis have shouldered the financial risks of litigation, which limits the number of cases they are able to prosecute. But what if the tables were turned and insurance companies could allow plaintiffs to offset some of the financial risk associated with bringing a suit?

Litigation insurance” is new a trend spreading across the United States that provides coverage to plaintiffs and to attorneys who take cases on a contingency fee basis in the event that the case is lost at trial. The policy can be purchased after the complaint has been served, and if there is a zero-dollar recovery, then the insurance policy will reimburse most expenses, such as the costs associated with expert witnesses, discovery, and travel.

Although litigation insurance has been common in the UK and Canada for many years, Level Insurance sent waves through the legal community when it opened the first US-based company to provide this service. Justin Leto and Larry Bassuk founded Level Insurance after seeing a gap in the legal industry in protecting the investment made by plaintiffs’ attorneys working on a contingency basis to cover the expenses of the suit. Level Insurance now provides policies anywhere between $3,500 and $250,000, and premiums are set at 7% of the contracted coverage. These policies are available for most tort and contract claims, including professional liability, product liability, premises liability, business torts, and breach of contract.

Plaintiffs and their attorneys apparently agreed with Leto and Bassuk’s assessment of the market, and litigation insurance quickly spread throughout the United States. In 2016, litigation insurance was only available in federal districts, Florida, California, New York, New Jersey, Illinois, and Texas. Two years later, in 2018 the list of states where litigation insurance is available now includes Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Virginia, Washington, West Virginia, and Wyoming.

But this rapid spread has not been without push-back from defense bar members, many of whom are concerned that the recuperation of legal expenses will lead to an increase in frivolous lawsuits, as it removes much of the deterrence from taking on  questionable cases. For example, in comparison to “litigation funding,” litigation insurance does not perform the same merit-based analysis of the case. Rather, case evaluation follows a “simple process,”comprised of only three eligibility questions.

However, many of the defense bar’s fears may prove to be unfounded, as litigation insurance does not dissolve all deterrent aspects of taking on a case. The insurance policy does not include many costs of the case, including attorney fees, opposing party’s costs, attorney’s fees awarded by the court, and the premium for the policy. Additionally, a claim can only be submitted if the case goes to trial and receives a zero-dollar recovery, which allows for frivolous cases to be disposed of through pretrial proceedings without any financial gain to the insured party.

Click here to view the original article.

Florida Bar Staff Opinion 37289

Revised as approved by The Florida Bar Board of Governors by vote of 23-17 on January 26, 2018

Florida Bar ethics counsel are authorized by the Board of Governors of The Florida Bar to issue informal advisory ethics opinions to Florida Bar members who inquire regarding their own contemplated conduct.  Advisory opinions necessarily are based on the facts as provided by the inquiring attorney.  Advisory opinions are authored in response to specific inquiries and may not be applicable to anyone other than the inquiring attorneys referenced in them.  Opinions are not rendered regarding past conduct, questions of law, hypothetical questions or the conduct of an attorney other than the inquirer.  Advisory opinions are intended to provide guidance to the inquiring attorney and are not binding; the advisory opinion process is not designed to be a substitute for a judge’s decision or the decision of a grievance committee.  The Florida Bar Procedures for Ruling on Questions of Ethics can be found on the bar’s website at www.floridabar.org.

A member of The Florida Bar has requested an advisory ethics opinion.  The operative facts as presented in the inquiring attorney’s letter are as follows.

The inquirer is a Florida attorney who owns a company that offers “litigation cost protection” insurance. As explained by the inquirer, this insurance coverage “protects the money advanced by [a lawyer], pursuant to a contingent fee arrangement, by reimbursing those advanced funds to the [lawyer] in the event of a trial loss.” By contrast, the inquirers wish to know whether the cost of the litigation insurance policy could be charged to the client if the inquirers recover funds for their clients through a settlement or positive trial verdict and the client’s liability for payment of costs is contingent on a recovery. The inquirers requested this opinion after reviewing Florida Bar Staff Opinion 37055, which concluded that it would be improper to charge the cost of these insurance policies to the client where the repayment of costs is contingent on the outcome of the matter.

The inquirers assert that the existence and individualized cost of the insurance coverage would be disclosed to each affected client in writing in the client’s contingent fee agreement. Because the cost of the insurance policy is individualized to the particular client’s matter, the inquirers state that the policy would be identified and allocated to the individual client on a case-by-case basis and billed in the client’s closing statement. The inquirers also suggest that these policies would assist the client by providing the lawyer with “more confidence… in spending additional money… and otherwise litigating a case in a way that will maximize results for the client.”

In sum, the inquirers ask: “May [a lawyer] advance, as a cost (to be reimbursed by the client at the close of litigation), a premium for an insurance policy that covers the risk of losing the money that has been spent by [a lawyer], on behalf of the client, on litigation costs in the event that case is lost at trial?”

The inquiry poses a close question because the circumstances described create potential conflicts of interest between the lawyer and the client throughout the course of litigation. Moreover, the potential conflicts exist regardless of whether the lawyer pays the litigation cost protection insurance premium as a matter of general overhead or whether the client reimburses the premium expense out of recovery proceeds. Only when the client agrees at the outset of the representation to pay all costs and expenses of litigation as they are incurred, the client decides to purchase the insurance policy, and the client is the sole beneficiary of the policy as the named insured, would the committee have few, if any, concerns about potential conflicts of interest.

At the outset, this opinion notes that litigation cost protection insurance does not fit neatly within the classification of either “general overhead” to be accounted for in the lawyer’s fee or “in-house costs or services” a client may agree to pay. See R. Reg. Fla. Bar 4-1.5 cmt. Consequently, the question posed implicates several ethics rules. After considering each of those rules, a lawyer may charge a client for the premium expense of a litigation cost protection insurance policy only when:

  1. the lawyer makes an objectively reasonable determination that the litigation cost protection insurance coverage serves the client’s best interests;
  2. the amount to be charged to the client is fair and reasonable and is communicated to the client, in writing, in a manner that the client can reasonably understand;
  3. the lawyer fully explains to the client what litigation cost protection insurance is, why the lawyer believes a litigation cost protection policy will serve the client’s best interests, that the lawyer will be the sole beneficiary under the insurance policy, and that the client will be liable for the insurance premium expense and all other costs and expenses in the event of a recovery;
  4. the lawyer fully explains to the client that other lawyers may advance the client’s costs without charging the client the cost of the litigation cost protection policy;
  5. the lawyer provides the client with the opportunity to review the litigation cost protection policy;
  6. the client is advised, in writing, of the desirability of seeking, and is given the opportunity to seek, independent counsel;
  7. the lawyer obtains the client’s informed consent in writing at the beginning of the representation; and
  8. the lawyer does not allow the terms or availability of coverage under the insurance policy to adversely affect their independent professional judgment, the client-lawyer relationship, or the client’s best interests.

At the most basic level the question touches on the duty of competence. Rule 4-1.1, Rules Regulating The Florida Bar, requires lawyers to use “methods and procedures meeting the standards of competent practitioners.” R. Reg. Fla. Bar 4-1.1 cmt. Hence, the expense of litigation cost protection insurance should not be passed to the client if the security afforded by coverage is a significant consideration in the lawyer’s decision to undertake representation in the first instance. In other words, if the lawyer is not financially positioned to undertake the methods of competent practitioners in the absence of a litigation cost protection insurance policy, the policy is a cost of general overhead because it enables the lawyer to meet the competency threshold.

The duty of competence also touches on the lawyer’s disclosure and communication obligations. “The lawyer should consult with the client about the degree of thoroughness and the level of preparation required as well as the estimated costs involved under the circumstances.” R. Reg. Fla. Bar 4-1.1 cmt. Similarly, commentary to Rule 4-1.5, governing fees and costs for legal services, explains that “[t]he lawyer should sufficiently communicate with the client regarding the costs charged to the client so that the client understands the amount of costs being charged or the method for calculation of those costs.” R. Reg. Fla. Bar 4-1.5 cmt. And the text of Rule 4-1.5 provides that “[w]hen the lawyer has not regularly represented the client, the basis or rate of the fee and costs shall be communicated to the client, preferably in writing. . . .” R. Reg. Fla. Bar. 4-1.5(e)(1).

In addition to the communication components of Rules 4-1.1 (competence) and 4-1.5 (fees and costs for legal services), Rule 4-1.4 speaks specifically to the lawyer’s mandatory communication obligations. For example, the lawyer must “reasonably consult with the client about the means by which the client’s objectives are to be accomplished,” R. Reg. Fla. Bar 4-1.4(a)(2), and “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” R. Reg. Fla. Bar 4-1.4(b). Commentary under the “Explaining matters” heading references the lawyer’s “duty to act in the client’s best interests” and notes that “when a lawyer asks a client to consent to a representation affected by a conflict of interest, the client must give informed consent.” R. Reg. Fla. Bar 4-1.4 cmt. (emphasis added).

Read together, Rules 4-1.1, 4-1.4, and 4-1.5 require the lawyer to fully explain to the client all material aspects of the litigation cost protection insurance policy. The material aspects that must be explained include, but are not limited to, that other lawyers may advance the client’s costs client without charging the client the costs of litigation insurance, the narrow circumstances in which a claim under the policy would be paid, that the client will pay the cost of the insurance policy out of any recovery in the matter, that the lawyer will be the sole beneficiary under the insurance policy, and that, in the event of recovery, the client will be responsible for paying all other costs and expenses incurred in the representation without offsetting credit for the expense of the litigation cost protection insurance policy.  To provide full transparency, the lawyer also must provide the client with the opportunity to review the litigation insurance contract.

Asking a client to reimburse the expense of litigation cost protection insurance out of the client’s recovery also implicates rules governing conflicts of interest because the insurance primarily serves the lawyer’s financial interests. Three facts illustrate this point:

  1. the policy premium is not a cost of obtaining or presenting evidence;
  2. other lawyers would provide the same or better representation without charging the policy premium expense to the client; and
  3. the likelihood a compensable claim will arise is extremely low considering:
    • that coverage exists only when a fact-finder returns an adverse verdict on the merits at trial; and
    • the low percentage of cases actually tried to judgment. See, e.g., S. District Judge Xavier Rodriguez, The Decline of Civil Jury Trials: A Positive Development, Myth, or the End of Justice As We Now Know It?, 45 St. Mary’s L.J. 333 (2014) (estimating the percentage of cases disposed of by a judgment at trial as less than two percent in both federal and state courts).

Rule 4-1.8(e) permits a lawyer to advance the court costs and expenses of litigation:

(e) Financial Assistance to Client.  A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1)  a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and

(2)  a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

But litigation cost protection insurance does not fall within the rule because the insurance policy is not itself a litigation expense; insurance is not a cost or expense of “obtaining and presenting evidence.” R. Reg. Fla. Bar 4-1.8 cmt. (“Financial assistance”). Rather, the purpose of the insurance policy is to protect the lawyer’s investment in the costs and expenses of litigation.

For that reason, litigation cost protection insurance raises the possibility of economic tension and conflicts of interest between the lawyer and the client. Because the insurance contract incentivizes going to trial, the lawyer and the client may have very different cost-benefit calculations. Therefore, “there is a substantial risk that the representation of 1 or more clients will be materially limited by …  a personal interest of the lawyer.”  R. Reg. Fla. Bar 4-1.7. See also R. Reg. Fla. Bar 4-1.7 cmt. (“Lawyer’s Interest . . . [A] lawyer’s need for income should not lead the lawyer to undertake matters that cannot be handled competently and at a reasonable fee.”).

In short, the litigation cost insurance product is part of a business agreement, albeit with a third party rather than with the client, creating circumstances resembling the conflicts of interest that can arise, and be cured, pursuant to Rule 4-1.8. That rule provides in pertinent part:

(a) Business Transactions With or Acquiring Interest Adverse to Client.  A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, except a lien granted by law to secure a lawyer’s fee or expenses, unless:

(1)  the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

(2)  the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

(3)  the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.

The inquirer must consider the above ethics concerns in each instance in which the inquirer wishes to purchase litigation cost protection insurance and pass the cost to the client in the event of a recovery.  The inquirer must make an objectively reasonable determination that purchasing the litigation cost protection insurance benefits the client prior to seeking the client’s informed agreement that the inquirer will purchase the policy and the inquirer will be repaid the costs of the policy out of a recovery.

In conclusion, the nature of litigation cost protection insurance, the financial interests protected by the insurance policy, and the limited circumstances in which a compensable claim arises under the policy require the lawyer to proceed with caution. The inquirers may charge a client for the premium expense of a litigation cost protection insurance policy only upon satisfying the six conditions described in this opinion.  This opinion addresses only the ethics issues involved in the inquiry and does not endorse the concept of litigation cost insurance policies.

Index:  4-1.1, 4-1.4, 4-1.5, 4-1.7, 4-1.8

Join us: DECISIONS 2016: Recent Developments in Tort Law

Join Level Insurance at the NYSTLA Recent Developments in Tort Law Conference.

TOPICS
DAMAGES 
Steven E. North, Esq.
North & Deutsch LLP

DISCOVERY 
Joseph P. Awad, Esq. – Past President
Silberstein Awad & Miklos, P.C.

ETHICS & PROFESSIONALISM
Lenore Kramer, Esq. – Past President
Kramer & Dunleavy, L.L.P.

EVIDENCE
Robert J. Genis, Esq.
Board Member
Sonin & Genis, P.C.

INSURANCE
Jonathan A. Dachs, Esq.
Shayne, Dachs, Sauer & Dachs, LLP

JURISDICTION
Prof. Jay C. Carlisle, II
Professor Emeritus, Elizabeth Haub School of Law at Pace University
& Senior Counsel at Collier, Halpern, Newberg and Nolletti

LABOR LAW
Brian J. Shoot, Esq.
Sullivan Papain Block McGrath & Cannavo P.C.

LEGISLATION
Corey B. Kaye, Esq.
Kaye & Lenchner

MASS TORTS
Hunter J. Shkolnik, Esq.
Napoli Shkolnik, PLLC

MEDICAL MALPRACTICE
David B. Golomb, Esq. 
– Past President
Law Offices of David B. Golomb

MEDICARE & ERISA
Helene E. Blank, Esq.
Blank & Star, P.L.L.C.
with John M. Tomsky, Esq.
Counsel to the firm Sullivan Papain Block
McGrath & Cannavo P.C.

MOTOR VEHICLE LIABILITY &
DEVELOPMENTS IN NO-FAULT

Nicholas I. Timko, Esq. 
– Past President
Kahn, Gordon, Timko & Rodriques, P.C.

MUNICIPAL LIABILITY
Vito A. Cannavo, Esq.
Sullivan Papain Block McGrath & Cannavo P.C.

PLEADINGS & FILING
Anthony Pirrotti, Jr., Esq. – Westchester Affiliate President
Pirrotti & Glatt Law Firm PLLC

PREMISES LIABILITY
Jeffrey A. Lichtman, Esq.
Past President
Trolman, Glaser & Lichtman, P.C.

PRODUCT LIABILITY
Paul D. Rheingold, Esq.
Rheingold, Valet, Rheingold Ruffo & Giuffra LLP 

TRIAL PRACTICE
Ben B. Rubinowitz, Esq.
Gair, Gair, Conason, Rubinowitz, Bloom,
Hershenhorn, Steigman & Mackauf

WORKERS’ COMPENSATION
Matthew A. Funk, Esq. – President-Elect
Pasternack Tilker Ziegler Walsh
Stanton & Romano LLP

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