Q&A: Trends in insurance recoveries litigation

In June 2019, Burford’s Andy Lundberg spoke with Nancy Sher Cohen—head of the Los Angeles office of Lathrop Gage and a leader of the Insurance Coverage Practice Group for the firm—about the most important topics of concern for clients pursuing or considering complex insurance coverage claims. Following are excerpts of their conversation.

Complex insurance coverage litigation almost didn’t exist before the 1980s, and since then it has seemingly become a fixture in the coverage field. Do you think that will continue to be the case, or is there reason to think we’ll see a bigger trend toward alternative dispute resolution?

Nancy Sher Cohen: Complex insurance coverage litigation is likely to continue in significant part because multiple carriers on a matter usually act individually even though the policies are interdependent. Whether the litigation is conducted through arbitration or court proceeding, each carrier wants to have its own individual defenses and allocation claims adjudicated and explored. There are also uncertainties in policy language, particularly when insurers come up with ideas for new coverages (environmental and cyber being obvious examples), such that in large complex matters the carriers will assert every possible defense and try to pry open some door to deny coverage. When a lot of money is at stake, jumping to alternative dispute resolution is not likely to occur, which is why, given the cost of litigating high-stakes matters, litigation financing can be very important.

How do you think policyholders (and their lawyers) differ from insurers (and their lawyers) when it comes to budgeting for and managing the expense of big coverage litigation?

Nancy Sher Cohen: Insurer side coverage lawyers get beaten down on rates; from the policyholder side, it often looks like their clients are less concerned about overall cost and more concerned with rate structures. Policyholder clients, on the other hand, very much want budgets and overall expense management. Complex coverage matters may take years to resolve and are pursued with great expense and budgets, if realistic, can still be quite high, and can hit a company’s balance sheet hard. For that reason, help in funding is the new way of working through the desire of clients to pursue recalcitrant carriers while still keeping costs under control.

There’s currently a lot of discussion about lawyers who have traditionally billed by the hour migrating to partial contingency or flat fee structures for plaintiff side commercial cases. Where do you think commercial insurance policyholders and their lawyers are headed on that spectrum?

Nancy Sher Cohen: Alternative fee arrangements are required these days in most complex insurance coverage litigation. Traditional billing by the hour under the full rate schedules of large law firms is not generally acceptable any more. Partial contingency and flat fee structures are very much part of plaintiff side cases, not just to keep down costs, but also to assure clients that their lawyers have skin in the game. Alternative fee arrangements on significant size cases are standard procedure these days and will continue.  

Burford’s latest research reveals that both lawyers’ and clients’ general awareness of legal finance as a litigation cost management tool outpaces their actual understanding of it. What do you think is responsible for that disparity?

Nancy Sher Cohen: While today’s policyholder clients want alternative fee arrangements, they are generally unfamiliar with and resistant to legal financing. I have had clients ask why, if a financing firm can make money out of the arrangement, they shouldn’t just finance the litigation themselves. They don’t see how legal finance can help them manage their own cash flow, address their balance sheet concerns and share risk. So, yes, clients are often unfamiliar with the details of and rationale for using this device, and therefore they are a bit scared about working the leading edge.

How can legal finance help level the playing field for policyholders, who typically are one-time plaintiffs in the insurance area, while insurers are repeat players?

Nancy Sher Cohen: Yes, the relationship with a policyholder in complex litigation isn’t likely to be repeated. An environmental coverage matter, with all its complexity, won’t be repeated for the same client and often takes years to resolve. Sometimes results for the clients by way of settlements and payments don’t come for years while money is flowing out of the company to fund the litigation with the legal department unable to show results. Legal financing is extremely helpful to level the playing field because the policyholder will have the war chest to endure a tough fight over a long period of time while reducing the company’s costs on an annual basis. Given the stream of work provided to insurer counsel, the timing and pace of litigation doesn’t matter—but it sure does for a policyholder that needs to show the big investment in legal fees and costs will pay off.

Nancy Sher Cohen is head of the Los Angeles office of Lathrop Gage and is a leader of the Insurance Coverage Practice Group for the firm. She has recovered over $1.5 billion on behalf of policyholder clients and has been named by Law360 as one of the most admired coverage lawyers in the country. She is a member of the American College of Coverage Counsel and has been named one of the top policyholder lawyers in the country by multiple journals and publications.