How Contract Litigation Insurance Helps Reduce Risk in Contract Disputes

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How Contract Litigation Insurance Helps Reduce Risk in Contract Disputes

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.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us, though doing so does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. Our description of what we believe to be superior technology and how we win cases reflects our typical approach to litigation, which we believe:  (i) gives us a competitive advantage, and (ii) is responsible for any success we have had. But we do not win every case. Other lawyers may have technology or approaches that they believe gives them an advantage. Also, the results that we have obtained in other cases or that are described in our clients’ testimonials do not guarantee, promise, or predict the outcome of your case, which depends on the law, facts, and evidence specific to it.