All attorneys are used to the "American Rule" whereby each side bears their own legal fees, win or lose. That is the default rule only, and many contracts contain dispute resolution language allowing the prevailing party to recover legal fees. These clauses are thought to deter frivolous claims and increase incentives to settle. The risk of paying the other side their potentially substantial attorneys' fees is reason to consider whether a compromise might be better than trial.
What if . . . you could take that risk off the table? Yes, there is insurance for that.
Kevin B. Martin at Sonoma Risk Insurance Agency recently briefed me on Contract Litigation Insurance (CLI), which can be purchased after litigation has already commenced to insure contract litigants (Plaintiffs or Defendants) against the risk of paying their adversary's legal fees in a contract dispute. With the ever spiraling cost of litigation, the product is worth considering to mitigate risk through an up-front insurance premium.
My understanding is that CLI is not available (or not yet available) in arbitrations, although an arbitrable claim filed in court first and then stayed pending arbitration might qualify. Worth considering.
News and commentary from the Financial Services attorneys at Preti Flaherty.
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