As judgment preservation insurance gains steam, appellate decision leaves insurers 'on the hook' for millions
A federal appeals court’s April 30 reversal of a $1.6 billion judgment for a software maker “has sent ripples through the growing judgment preservation insurance industry.” (Image from Shutterstock)
A federal appeals court’s April 30 reversal of a $1.6 billion judgment for a software maker “has sent ripples through the growing judgment preservation insurance industry,” according to a Bloomberg Law story.
The 5th U.S. Circuit Court of Appeals at New Orleans overturned the huge 2022 verdict for Houston-based BMC Software against IBM, leaving insurers who guaranteed a portion of the award “on the hook” for millions of dollars, according to Bloomberg Law.
Judgment preservation insurance can be bought by investors, lawyers and parties after a verdict, according to Bloomberg Law and Law360. The insurance pays the insured a portion of a judgment if it is overturned on appeal.
Stephen Kyriacou Jr., managing director and senior counsel at the Aon Litigation Risk Group, explained the concept in an interview with Law360.
“If you were to cross the street today and get hit by a bus, sue and then win $15 million at trial, that damage award would still be 100% at risk on appeal,” Kyriacou told Law360. “I think most people, if they could afford it, would be willing to pay a $1 million to $2 million coverage premium to buy a $10 million JPI policy that guaranteed at least an $8 million to $9 million recovery net of that premium, even if the judgment was wiped out on appeal. This is what the basic economics of many JPI deals look like.”
Law360 reports that judgment preservation insurance “has gained steam in the past five years.” But Bloomberg Law spoke with lawyers who said insurers have become more cautious.
Some insurers are hiking prices; cutting the percentage of the judgment that they will insure; and writing policies for multiple cases, rather than a single judgment, according to the article.
“The market is still going to write the product,” said Jason Goldy, global team leader for Alliant Insurance’s Litigation & Contingent Risk Practice, in an interview with Bloomberg Law. “You just need to navigate risks … but the market will survive, it will continue and it will adjust.”
