Everything you need to know about the Litigation Buy out Insurance

 Roger Smith

The litigation buy out insurance (LBI) is a tailored insurance strategy that helps in isolating a client from the unpredictability associated with an outstanding litigation.

The LBI can also be used to negate the requirements for the use of indemnities or escrows in a sales deal, providing certainty to both parties involved in the same.


The litigation buy out insurance enables a client to ring-fence any possible liabilities occurring from any anticipated or ongoing litigation, arbitration or any other dispute.

The LBI is particularly useful in the context of a business or sale where the unresolved dispute may otherwise prevent the sale from proceeding further.

As cover and underwriting are customized in each case, the policy can also be tailored to a dispute, irrespective of the subject matter.

Strategic Benefits of a Litigation Buy out Insurance

• The LBI plays a big role in transferring an uncertain liability from the insured to the insurer which may simultaneously reduce the insured’s concerns about the conduct of the litigation or the outcome.

• The LBI can also transform contingent third-party claims into a quantified insurance cost allowing them to be precisely accounted for as per requirements.

• The LBI helps to cap future financial risk: the premium is usually fixed and paid, irrespective of the outcomes of the dispute.

• The LBI helps to release business opportunities that were previously blocked by claims or disputes.

• The LBI eliminates obstacles in the way of a pending sale or acquisition.

• The litigation buy out insurance may enable favorable public disclosures, subjected to the agreement of the insurer.

Policy Form

The litigation buy out insurance is commonly filled to cover a single known risk, claim or, lawsuit. It can also be filled as a means of protection against any anticipated claim or a threatened litigation.

The insured person may choose to have defense costs included in the liability limit or simply to cover for the damages that may have to be incurred as a possible outcome of the case.

· The policy period: The terms of the policy should usually run from the closing date of the transaction until settlement of the dispute.

· Retention: The insured and the insurer will have to agree on the excess (it is the uninsured money, or more specifically, we should say the loss, that has to be borne by the insured). The higher the excess, the lower is the premium.

· Exclusions: Litigation buy out insurances usually vary from policies to policies. However, some general exclusions stay consistent throughout the entire process. These exclusions normally include penalties, fines, and acts committed on the insured’s end with the sole intention of violating laws and other pension funding deficits.

Two important points to remember

· Most insurance companies offer LBI on the basis of litigation risks. The higher the risk of failure, the higher the premium.

· The timescale for obtaining a litigation buy out insurance depends on the dispute stage. Normally, the LBI becomes available within two to three weeks from the date of the first inquiry.

So that more or less sums things up. Hope you had an enlightening read.

Domain: Business
Category: IP/Law
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