Intellectual Property

Following Up With A Litigation Risk Insurance Broker (Part III)

2024 is sure to present some opportunities and challenges for everyone operating in the exciting and developing space of litigation risk insurance.

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Intellectual PropertyThis week, I continue my written interview with Stephen Kyriacou Jr., who is  a managing director and senior lawyer in Aon’s Litigation Risk Group, where he structures and places litigation risk insurance policies. Over the past two weeks, Stephen has shared his comprehensive knowledge with this audience, and I am happy to offer the conclusion of our interview to this readership.

Now to the remainder of my interview with Stephen, which concludes with his answer to my third question. As usual, I have added some brief commentary to his answer below.

Gaston Kroub: Given the rapid evolution of the litigation and contingent risk insurance market over the past 18 months and the challenges that you just described, what do you think 2024 will look like in the space, both generally and with respect to IP litigation?

Stephen Kyriacou: Our team’s main focus in 2024 will remain the same that it’s always been — finding good opportunities for clients looking to insure their litigation risks not because they are concerned that they’re going to lose their case or their investment but because obtaining insurance will deliver some ancillary benefit to them. We will continue to carefully diligence those opportunities internally and work with our clients and their counsel to present them to insurers in a way that will make their underwriting as easy and straightforward as it can possibly be. That’s the approach that we’ve used to help build this market to the place where it is today, and we believe that’s the approach that will ensure the long-term health and sustainability of the market going forward.

But as I said before, I think we’re going to see continued growth in the space: I think deal flow will keep increasing, I think insurers will keep staffing up and investing more in this area of their business, and I think more deals are going to get done with a wider variety of primary and/or lead insurers. I think mainstream knowledge about and acceptance of these solutions is going to continue increasing, as well, and will drive increased activity.

In terms of the challenges and changes that we’ve seen in the market, I think some of the trends we’ve seen over the last year to 18 months are going to continue. I think rates will continue to slowly increase to the point where the historical “10% to 15% rate-on-line” rule of thumb will probably become something closer to 12.5% to 17.5%, though there will of course be certain obviously strong and attractive risks that insurers will be willing to do at or even below 10% on a deal-by-deal basis. I think we’ll see some of the cases that have had interim adverse developments result in claims while others will come off-risk without a claim. I think other on-risk policies that have had adverse interim developments — maybe even most of them — will remain on-risk into 2025 while those litigations march on. I think judgment preservation insurance policies for patent infringement judgments will continue to become more difficult to insure because of the unique risks that they present, with that area of the market contracting, but that we will see some carriers become more open to insuring litigation funder and plaintiff-side contingent fee law firm risks, with that area of the market growing.

And I think that Aon and the other leading participants in this burgeoning industry will keep meeting some of the other challenges that I noted earlier head-on, and driving continued progress towards things like more insurers being willing to insure litigation funders and contingency fee law firms. I am hopeful that we will also see some of the other brokers in the space, including those who are newer entrants to the market, be more selective about the risks that they send out to insurers, as well, particularly with respect to patent infringement judgments.

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In sum, I expect there will continue to be opportunities to grow the litigation and contingent risk insurance business by capitalizing on greater awareness of our solutions, increased underwriting capacity among insurers, and increased sophistication among brokers, underwriters, insurance company executives, potential buyers of this sort of coverage, and their transactional and litigation counsel.  At the same time, certain opportunities that would have been close calls in years past may face greater challenges in getting insured or will only be insurable at rates that are a few notches above what they would have been two or three years ago. But all of this is part of the maturing of an industry that can bring a remarkable amount of value to insurers and insureds alike, and I’m extremely excited to see exactly what the future will hold.

GK: Stephen’s comments and outlook echo what I mentioned last week about the maturation process the litigation risk insurance market continues to undergo. On the one hand, it is good to see that insurers are getting smarter about pricing for more variable and maybe even binary risks — like trying to predict a federal circuit outcome in an appeal from a patent infringement judgment awarding substantial damages — to those types of risks that may present more diversification and a longer time horizon for a potential claim. On the other hand, a continued robust market for judgment preservation insurance in the patent space remains an important safety valve for patent owners who continue to face challenges in getting alleged infringers to properly compensate them for the use of their inventions, even after a jury has found in the patent owner’s favor. Considering the importance of the federal circuit as the de facto “last word” in the overwhelming majority of patent cases, we should continue to expect that those on the wrong side of a damages award will continue to pursue appellate relief, while the winning parties below doing everything they can to insure their interim victories to the greatest extent possible. With the impact of insurance not limited to judgment preservation products, there is even more reason to believe that 2024 is sure to present some opportunities and challenges for everyone operating in this exciting and developing space.

Thanks so much to Stephen for his generosity to this audience on this important topic. I wish him the best in all his endeavors and am sure that 2024 will be another year chock full of opportunity and creativity for the entire litigation insurance risk marketplace. In the meantime, I am always open to conducting interviews of this type with other IP thought leaders, so feel free to reach out if you have a compelling perspective to offer.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

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Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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