For any litigant involved in a business dispute — whether it’s a small local matter or a “bet the company” lawsuit — the issue of attorneys’ fees is always concerning. In most states, the losing party in a lawsuit can be at risk for having to pay the winning party’s attorneys’ fees, which can range from thousands to millions of dollars. In Arizona, the losing party is required to pay the prevailing party’s attorneys’ fees by statute, even if there is no provision to do so in the contract under dispute.
Contract Litigation Insurance (CLI) helps mitigate the risk of Arizona’s “loser pays” provision by providing insurance protection for costly attorneys’ fees in a contract dispute. CLI will pay the prevailing party’s attorneys’ fees up to the limits of the policy at the conclusion of the trial or summary judgment.
CLI policies are typically priced as a percentage of the limit purchased — for plaintiffs, this is usually 7 percent to 8.5 percent, so $500,000 in coverage would average around $40,000. Defendants typically pay 9 percent to 10.5 percent of the limit purchased.
The most obvious benefit of CLI is negating the worry about being on the hook for the other party’s attorneys’ fees if you lose your lawsuit. Another benefit is in taking away the other side’s leverage, especially if your opponent has vast financial resources and ramps up the legal fees in anticipation of being able to recoup them. This potential exposure could lead you to settle earlier than you might have otherwise. Having a CLI policy increases your negotiating power, which could mean a better settlement, and also allows litigants to budget more efficiently by folding the cost of the policy into your litigation budget.
Every CLI policy is customized since no two lawsuits are alike. Underwriters conduct a review process and consult with the policyholder on how much insurance is likely to be needed. Once the lawsuit has been filed, the policy is purchased, and expires once the litigation terminates.
When business disputes arise, you need experienced legal representation and advice. Williams Mestaz, L.L.P., is a law firm focusing on contract law, bet-the-company cases, aviation, and business divorce. Contact us at (602) 256-9400 and schedule a time to meet with us today.