Adverse Costs Insurance
Litigation Finance & Legal Claims
Definition
Adverse costs insurance covers the risk that a losing claimant must pay the opposing party's legal costs, a key exposure in loser-pays jurisdictions and some arbitration settings.
Why it matters
Insurance can make a claim financeable by limiting downside, but policy exclusions, limits, deductibles, and insurer consent requirements still affect recovery economics.
Common misconceptions
- •Insurance does not eliminate merits risk; it addresses a specific cost-shifting exposure.
- •A policy limit can be too small relative to the opponent's budget or procedural posture.
Technical details
Policy Fit
Key terms include covered proceedings, limits, retention, insurer rating, exclusions, notification duties, and whether settlement decisions require insurer consent.
Waterfall Interaction
Premiums and recoveries can sit inside the case budget or waterfall, changing the funder's effective advance and net proceeds.