07 October, 2024

Judgment Preservation Insurance: Protecting Against Appellate Shocks

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In: Articles and Clients alerts,Blog

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Reading Time: 5 minutes

  • Case Overview: A software company won a $1.6 billion judgment against a computer manufacturer in 2022, which was partially insured by the insurance company and other carriers. The 5th Circuit Court of Appeals overturned the judgment in April 2024, leaving insurers liable for a significant payout.  
  • Impact on JPI Market: This case highlights the inherent risks in Judgment Preservation Insurance (JPI) and has led insurers to reassess their underwriting strategies, potentially increasing premiums and decreasing coverage percentages.
  • The Insurance Company's Response: According to a Bloomberg Law article, three people familiar with the situation indicated that the insurer has withdrawn from at least two potential JPI deals following the appellate decision, signaling a more cautious approach to this type of insurance.

Understanding Judgment Preservation Insurance

JPI is a specialized insurance product that provides financial protection against the risk of a judgment being overturned or reduced on appeal. In essence, it allows parties to "lock in" a portion of their awarded damages, even if the initial judgment is later reversed. This offers peace of mind and financial security in the face of unpredictable appellate outcomes. 

Imagine a small business owner who wins a lawsuit against a larger corporation for breach of contract. The court awards the business owner $5 million in damages. However, the corporation decides to appeal the decision.

Without JPI, the business owner now faces the risk that the appellate court could overturn the original judgment or significantly reduce the award. This could leave the business owner with nothing after years of litigation and significant legal expenses.

The business owner purchases a JPI policy for a portion of the judgment, say $3 million. The policy might cost them a premium of $500,000.

  • If the appellate court upholds the judgment: The business owner receives the full $5 million award and the JPI policy essentially serves as a form of financial security.
  • If the appellate court overturns the judgment: The business owner still receives $2.5 million ($3 million coverage minus the $500,000 premium) from the JPI policy, mitigating their losses despite losing the appeal.

In essence, JPI acts as a safety net, ensuring that a portion of the awarded damages is preserved, even in the face of an unfavorable appellate outcome. It allows parties to secure a more predictable financial outcome in the midst of legal uncertainty.

The Growing Need for JPI

As litigation becomes increasingly complex and judgments grow larger, the demand for JPI has risen significantly in recent years. In their article, Law360 states that "judgment preservation insurance 'has gained steam in the past five years.'" This type of insurance is particularly valuable in high-stakes cases, such as the software company vs. computer manufacturer dispute, where the financial implications of a reversed judgment could be devastating.

Challenges and Opportunities in the JPI Market

The JPI market has been noticeably affected by the recent appellate decision in the Software Company case. Insurers are now exercising greater caution, adjusting premiums, and re-evaluating their underwriting criteria.

However, despite these challenges, the JPI market remains robust. Insurers are adapting to the evolving risk environment by developing innovative solutions and refining their approach to coverage. This includes exploring alternative coverage structures, such as portfolio transactions that spread risk across multiple cases.

QPWB: Your Partner in Understanding JPI

At Quintairos, Prieto, Wood & Boyer, P.A., we recognize the growing importance of JPI in today's legal climate. Our team of DIFFERENCE-MAKERS possesses the legal excellence to guide clients through the complexities of JPI and help them secure comprehensive coverage tailored to their specific needs.

Whether you're an investor seeking to protect your investment in litigation funding, a lawyer managing contingency fees, a litigant facing a lengthy appeals process, or an insurer seeking to mitigate risk and manage potential payouts, QPWB can provide expert counsel and strategic guidance on JPI.

Key Takeaways:

  • JPI is an essential tool for mitigating risk in high-stakes litigation.  
  • The JPI market is dynamic and evolving, requiring careful consideration of coverage options.
  • QPWB offers legal excellence and a DIFFERENT APPROACH to help clients navigate the complexities of JPI.

Discover the QPWB Difference

Learn More

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