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Litigation buy out insurance can potentially provide a mechanism for a corporate transaction team and litigation department to potentially work with one another for the benefit of the same client. The following scenario demonstrates how having an LBO policy in the transaction can not only benefit the clients, but also benefit the law firm.

Scenario:

Law firm is appointed to advise a buyer on the acquisition of a private bank. However,  there is a possibility that the bank could potentially become embroiled in widespread litigation relating to mis-selling of a particular financial product.  The potential risk of litigation is causing difficulty in agreeing the valuation and therefore purchase price.  The parties agree to remove this obstacle by capping the potential litigation risk with a litigation buy out (LBO) insurance policy.

The LBO insurance covers any liability for damages and/or legal defence costs which exceeds a certain sum (the retention). This ring fences the bank’s potential future liability and therefore appeases the buyer’s concerns.  To help with the LBO insurer’s due diligence, the law firm’s litigation team provides a short advice on what they perceive the potential litigation threat to be, together with their views as to why they believe the bank would successfully defeat any claims brought against it.  The insurer takes its own advice on the potential litigation risk as presented by the law firm. Because of the law firm’s M&A and litigation department’s intricate knowledge of the business, the insurer agrees that the law firm’s litigation team would be the appointed counsel to represent the bank should any litigation subsequently arise and therefore liaise with the LBO insurers under the terms of the policy.

LBO insurance is a highly tailored insurance product.  The circumstances of where such insurance might be suitable can be diverse.

If you would like to discuss the potential suitability and availability of an LBO policy for any particular transaction you are involved in then please contact either: Matthew.amey@thejudge.co.uk or James.delaney@thejudge.co.uk. Alternatively call us on: +44(0)845 257 6058