1. Is it permissible for a firm to charge the cost of a litigation insurance policy to the client if the firm recovers funds for the client, through a settlement or positive trial verdict, and the client’s liability for payment of costs is contingent on a recovery?
2. A firm may charge the cost of a litigation insurance policy to the client if the firm recovers funds for the client, through settlement or positive trial verdict, and the client’s liability for payment of costs is contingent on a recovery, as long as:
(1) the terms are fair and reasonable to the client, fully disclosed to the client, and transmitted in writing 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;
(3) the client agrees, in a writing signed by the client, to assume the cost of the litigation insurance policy upon recovery; and
(4) the insurance company has no decision-making power in the client’s case and the insurance policy does not in any way interfere with the law firm’s independence of professional judgment or the attorney-client relationship.
3. Typically, attorneys who undertake cases on a contingency fee basis do not charge the client “costs,” but recover costs if there is a recovery. Such attorneys often advance large sums of money as “costs” during the litigation. Some attorneys have purchased insurance to cover these costs in the event of a loss or a recovery too small to cover the costs. Now the question arises whether the attorney may ethically charge the cost of this insurance to the client if the firm recovers funds for the client through a settlement or positive trial verdict and the client’s liability for payment of costs is contingent on a recovery.
4. The Utah Rules of Professional Conduct (“URPC”) implicated in this opinion are the following:
• Rule 1.2(a). Scope of Representation and Allocation of Authority Between Client and Lawyer
• Rule 1.4. Communication
• Rule 1.5. Fees
• Rule 1.6. Confidentiality of Information
• Rule 1.7. Conflict of Interest: Current Clients
• Rule 1.8(a). Conflict of Interest: Current Clients: Specific Rules
• Rule 1.8(f). Conflict of Interest: Current Clients: Specific Rules
5. The proposed agreement between firm and client is not specifically prohibited by the Utah Rules of Professional Conduct. A contingent fee agreement must comply with Rule 1.5, which states, in pertinent part: “A lawyer shall not make an agreement for, charge or collect an unreasonable fee or an unreasonable amount for expenses.” URPC Rule 1.5(a). Pursuant to Rule 1.5(c), a contingent fee agreement shall be in writing signed by the client, stating the method by which the fee is to be determined, and when and to what extent litigation and other expenses are to be deducted from the recovery. URPC Rule 1.5(c). Upon conclusion of a contingent fee matter, the firm shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
6. The firm’s purchase of an insurance policy to cover expenses in the event of a loss and contracting with the client to reimburse the premiums paid by the firm in the event of a recovery, may also invoke Rule 1.8(a) of the Utah Rules of Professional Conduct, as a business transaction with the client or the knowing acquisition of an ownership, possessory, security or other pecuniary interest adverse to the client. If so, the transaction and terms on which the firm acquires its interest must be fair and reasonable to the client, fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client. The client may need to be advised in writing of the desirability of seeking the advice of independent legal counsel on the transaction and given a reasonable opportunity to seek said counsel. And the client may need to give informed consent,  in writing signed by the client, to the essential terms of the transaction and the firm’s role in the transaction.
7. In the case of a loss, the firm is effectively accepting monies for its representation of a client from one other than the client, and Rule 1.8(f) of the Utah Rules of Professional Conduct applies. In this instance, the client must give informed consent, there shall be no interference with the firm’s independence of professional judgment or with the attorney-client relationship, and information relating to representation of a client shall be protected as required by Rule 1.6 of the Utah Rules of Professional Conduct. As such, the firm shall ensure that the insurance company has no decision-making power in the client’s case and that the policy itself does not interfere with the firm’s independence of professional judgment or the attorney-client relationship.
8. The ultimate amount the client is required to pay upon recovery for the insurance premium must be reasonable both when charged and when collected pursuant to Rule 1.5 of the Utah Rules of Professional Conduct. For example, if, in a particular case, the client settles or prevails at trial but is awarded a lesser sum than expected, such that charging the premium in addition to the contingent fee and expenses would substantially deplete the amount the client recovers, charging the premium to the client may be unreasonable. If the amount calculated in the fee agreement for the premium is thereby unreasonable, the firm must not enforce this part of the agreement. This is true even if the litigation costs and the percentage used to calculate the premium are reasonable and/or agreed as reasonable by the client.
9. The insurance coverage that protects monies advanced by the firm in a contingent fee arrangement may provide an indirect benefit to the client,  because it gives the firm greater confidence in incurring costs litigating a client’s case in a way that would maximize the results for the client. The client may well be willing to pay for this benefit in the form of reimbursement for the cost of insurance in the event of recovery.
10. Alternatively, such an insurance policy may encourage the firm to go to trial rather than accept a settlement offer for the client. For example, if costs in a particular case are substantial, this may motivate the firm itself to push for going to trial. This raises the possibility of a conflict of interest between the firm and the client. However, certain conflicts of interest are inherent in contingency fee cases. For instance, a firm may prefer the client accept a low settlement offer so the firm receives some fees, while the client may desire to reject the offer and go to trial. As there is always the potential for such conflicts, the safeguards of Rules 1.2(a) and 1.4, Utah Rules of Professional Conduct, unless excepted otherwise, direct lawyers to abide by a client’s decisions concerning the objectives of representation, consult with the client as to the means by which they are to be pursued, and abide by a client’s decision whether to settle a matter. The purchase of litigation cost protection insurance does not alter this dynamic of the lawyer-client relationship.
11. The Utah Rules of Professional Conduct do not preclude a firm from purchasing a litigation insurance policy and charging the cost of the policy to the client upon recovery, as long
as the terms are fair and reasonable, fully disclosed in writing in a manner that can be reasonably understood by the client, the client is advised to seek independent counsel and given the
opportunity to do so, the client agrees in writing to the terms of the agreement, the insurance company has no decision-making power in the client’s case, and the policy does not interfere
with the firm’s independence of professional judgment or the attorney-client relationship.
 “Informed Consent” denotes the agreement by a person to a proposed course of action after the lawyer has communicated adequate information and explanation of the material risks of and
reasonably available alternatives to the proposed course of action. See URPC Rule 1.0(f).
 Accord Utah Ethics Advisory Op. Comm. (“EAOC”), Op. 02-01 Appx. (2002) (citing Ga. State Bar, Formal Op. 92-1 (1992) (lawyer to ensure that bank understands that its contractual arrangement can in no way affect or compromise lawyer’s obligation to client)).
 Although the purchase of an insurance policy by the firm may provide an indirect benefit to the client, the policy itself, in the scenario presented to the EAOC, rather provides financial
assistance to the firm in the event of a loss. Rule 1.8(e) of the Utah Rules of Professional Conduct states: “A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that: (e)(1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter . . . .” Comment 10 to Rule 1.8(e) states: “Lawyers may not subsidize lawsuits or administrative proceedings brought on behalf of their clients, including making or guaranteeing loans to their clients for living expenses, because to do so would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives lawyers too great a financial stake in the litigation. These dangers do not warrant a prohibition on a lawyer lending a client court costs and litigation expenses . . . because these advances are virtually indistinguishable from contingent fees and help ensure access to the courts.” An insurance policy that covers the costs of litigation in the event of a loss may reduce the lawyer’s financial stake in the litigation, by reducing the lawyer’s losses. The client’s agreement to cover the cost of the insurance premium in the event of recovery may further reduce the lawyer’s losses and financial stake in the litigation.
 If a conflict arises from the added component of litigation insurance, the firm would need to perform an analysis under Rule 1.7 of the Utah Rules of Professional Conduct.
 Accord Utah EAOC, Op. 02-01 Appx. (2002) (citing Tex. Comm’n on Prof’l Ethics, Op. 465 V. 54 Tex. B.J. 76 (1991) (attorney may borrow money from a lending institution for case expenses, and charge or pass on to the client the actual out of pocket interest or finance charges)).
Jason Hartman talks with Justin Leto, co-founder of Level Insurance, about how his company is helping the legal profession by offering litigation insurance. This gives lawyers protection from lost expenses when working contingency cases. Their hope is that the insurance will allow consumers to take their pick of lawyers instead of being pidgeon holed into only going to big companies that can afford to take contingency cases.
[1:23] Is litigation insurance a new thing?
[5:24] The cost of taking cases to trial has gotten higher and higher and something needs to be done
[8:27] How the claim process works for lawyers
[12:36] Why are business cases being done on contingency now too?
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.