Risk Management For The Financial Risk Of Litigation.

Lawsuits are never simple, nor are their outcomes ever a given. They are time consuming, emotionally draining, costly and, most of all, financially risky. The financial risk is heightened when litigants also face the possibility of having to pay their adversary’s attorneys’ fees if unsuccessful in litigation.

As you may be aware, contracts typically provide that if a lawsuit arises from the contract, the winner in the lawsuit is entitled to recover their attorney’s fees from the losing party. This type of contract provision is often called a “prevailing party” provision or “loser pays” provision. A majority of contracts (business, employment, franchise, lease agreements, construction) have a prevailing party provision.

Courts not only routinely enforce prevailing party provisions, but also are finding increasingly higher fee requests reasonable. On occasion, these fee awards may even exceed the base judgment. Here are some recent cases that would have greatly benefited from having Contract Litigation Insurance coverage.

1.  ExperExchange, Inc. v. Doculex, Inc. Trial court awarded prevailing defendants $636,441.22 in attorneys’ fees and cost pursuant to a prevailing party provision in a licensing agreement.

2.  Pacific Pejiu Wu Restaurant Partners v. Haramis. Court of Appeal affirmed trial court’s order requiring defendant to pay prevailing plaintiff $1,798,105.00 pursuant to a prevailing party provision in a lease agreement.

3.  Douglas R. Ring, Inc. v. Marasco. Court of Appeal affirmed trial court’s order requiring plaintiff to pay prevailing defendant $1,650,000.00 in attorneys’ fees pursuant to a prevailing party provision in a partnership agreement.

4.  Peak-Las Positas Partners v. Michael Bollag. Court of Appeal affirmed trial court’s award of $511,282.00 in attorneys’ fees to prevailing plaintiff pursuant to a prevailing party provision in a real estate purchase agreement.

5.  Toll Brothers, Inc. v. Chang Su-Olin. District Court ordered plaintiff Toll Brothers to pay prevailing defendant $1,111,907.00 in attorneys’ fees and $56,460.46 in costs pursuant to a prevailing party provision in a purchase and sale agreement.

6.  Bates v. Tristen Aviation Group, LLC. Court of Appeal affirmed trial court’s order requiring defendant to pay $248,000.00 in attorneys’ fees to prevailing plaintiff pursuant to a prevailing party provision in a purchase and sale agreement. This agreement related to the purchase of a Cessna aircraft.

7.  McKinzie v. Roemer. Court of Appeal affirmed trial court’s order requiring defendant to pay $291,340.00 to prevailing plaintiff in attorneys’ and expert fees arising from prevailing party provision in a purchase and sale agreement.

8.  Gaggero v. Knapp, Petersen & Clarke. Court of Appeal awarded prevailing defendant $1,202,994.00 arising from breach of a retainer agreement.

9.  Reudy v. Clear Channel. Trial court awarded prevailing defendant $510,000.00 in attorneys’ fees pursuant to a prevailing party provision in a purchase and sale agreement.

10.  Core Wealth Management v. Heller. Court of Appeal affirmed trial court’s order requiring defendant to pay prevailing plaintiff $250,000.00 in attorneys’ fees pursuant to a prevailing party provision in a promissory note.

Finally, Some Certainty For Uncertain Times.

Contract Litigation Insurance (CLI) was designed specifically by Sonoma Risk to cover individuals, businesses and corporations (plaintiffs or defendants) against the risk of having to pay their adversary’s attorneys’ fees, if unsuccessful in their contract claim. Not only does a CLI policy cover litigants from the risk of financial exposure, it also provides them with a number of other important benefits, including increasing settlement negotiation power and gaining more budget certainty.

Affordably Priced Options.

While CLI premiums are reasonable, litigants can save on the cost of coverage by purchasing a policy as early as possible. That’s because typically, as a lawsuit progresses, the degree of uncertainty increases – as does the price of the CLI premium.

To account for this change over time, CLI policies are offered through a tiered pricing structure that’s tied directly to the increased level of risk reflected in key stages of the lawsuit, including the initial case filing or service of the complaint and the motion to dismiss/answer and discovery periods.

Underwritten By A Global Leader.

CLI policies are underwritten by individual member companies of Zurich in North America, a leading global insurance carrier rated “A+ superior” by A.M. Best.* Zurich is an insurance provider for the majority of Fortune 100 global companies and offers programs to help reduce risk exposure in more than 170 countries.

*Rating information is provided as of 1/1/2011. For information about the ratings of Zurich American Insurance Company, access the ratings section on www.zurichna.com. For more complete financial information about the Zurich Financial Services Group and ratings for Zurich Insurance Company Ltd., access www.zurich.com.