Under UK law, the unsuccessful party in a litigation is typically required to pay the majority of the legal costs of the other side — so-called Adverse Cost Risk. The guideline is that the maximum liability that a litigation funder, who funds a reasonable case, can incur is equal to the amount invested by the funder. Every case on the AxiaFunder platform that exposes investors to this risk is required to have ATE (After the Event) insurance cover in place. However, in very remote circumstances, if this insurance fails (due to insurer capital adequacy issues or policy repudiation), in principle investors could be exposed to adverse cost risk, if the claimant were unable to pay.
To mitigate this risk, AxiaFunder only funds cases with ATE insurance cover from an insurer that is investment grade (or that has a Solvency Capital Ratio of at least 110%), and only funds cases where the facts are clear such that potential allegations by the insurer of misrepresentation by the claimant are unlikely.
In summary, any investor in litigation funding needs to recognise the potential for loss of capital in excess of the amount invested and assess whether the risk and return possible from this asset class are a good match for their own investment objectives and financial position. For more information, please review our blog Risks for Investors in Litigation Funding.
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