Liberty Mutual Reconsiders Litigation Insurance Deals After Major Judgment Reversal

Liberty Mutual has withdrawn from at least two potential litigation insurance agreements following the reversal of a $1.6 billion judgment it had underwritten, according to sources familiar with the matter. This decision underscores the volatility in the emerging judgment preservation insurance industry, where insurers offer policies to successful plaintiffs to secure lower-court awards.

Liberty Mutual was part of a consortium of insurers that provided coverage for a significant 2022 judgment awarded to Houston-based BMC Software in its lawsuit against IBM. The judgment, believed to be one of the largest ever in a commercial dispute, initially ruled that IBM had unlawfully taken BMC’s software business with a mutual client, AT&T. However, the US Court of Appeals for the Fifth Circuit overturned this decision in April 2024, determining that IBM had lawfully acquired the business.

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Sources indicated that the total insurance coverage for the judgment ranged from $500 million to $750 million, with Liberty Mutual’s share between $100 million and $150 million. The reversal has left insurers, including Liberty Mutual, facing substantial financial exposure.

This case has sent shockwaves through the judgment preservation insurance sector. Insurers in this field provide policies to ensure plaintiffs receive at least part of their awards even if appealed. Following the IBM case, some carriers have reduced the percentage of judgments they are willing to cover and have increased premiums. Jason Goldy, global team leader for Alliant Insurance’s Litigation & Contingent Risk Practice, noted these adjustments and suggested that they might accelerate if insurers face more significant losses.

Michael Perich, head of litigation insurance at Lockton, observed that larger judgments have become increasingly challenging and expensive to insure over the past year. He noted a rise in litigation insurance opportunities, including portfolio transactions that cover multiple cases rather than individual lawsuits. Perich emphasized the industry's adaptability, stating that market conditions are fluid and subject to change.

Liberty Mutual has refrained from commenting on specific commercial insurance clients. Richard Angevine, a spokesperson for the company, confirmed this policy, while representatives for BMC's legal teams at Bracewell LLP and White & Case did not respond to requests for comment.

The overturned IBM judgment and its ramifications highlight the risks involved in judgment preservation insurance. Despite these challenges, industry experts like Goldy maintain that the market for such insurance products will persist, adapting to new risks and conditions. "You just need to navigate risks through those hurdles or adjustments but the market will survive, it will continue, and it will adjust," Goldy affirmed.

This development comes amid a broader surge in litigation finance, where external funders invest in lawsuits. Judgment preservation insurance acts as a safeguard for investors, lawyers, and parties in cases decided by lower courts and facing appeals.

BMC has indicated it may seek a rehearing following the appeals court decision. Meanwhile, the IBM case continues to influence the strategies and risk assessments of insurers in the judgment preservation market.