Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how a publicly filed litigation insurance policy led to more questions than answers. Sign up to receive this column in your Inbox on Thursday mornings.
Quinn Emanuel Urquhart & Sullivan has been fighting for years to hold onto a $185 million fee it secured after winning a massive lawsuit for health insurers.
The public release last week of an insurance policy the firm obtained to protect the fee has raised new questions about how much money is actually at stake and whether the arrangement has skewed the law firm’s incentives in the ongoing litigation.
We have written plenty about the fight over the $185 million fee. A court awarded Quinn Emanuel the fee in 2021 for work on a pair of class-action lawsuits that led the U.S. government to pay health insurers more than $3.7 billion. But an appeals court last year ordered the fee reconsidered, citing a failed promise to Quinn Emanuel’s clients that the judge would compare the fee to the hours the firm worked, using what’s called a “lodestar” analysis.
And about a year ago, we reported Quinn Emanuel obtained an insurance policy protecting at least a portion of the award. We also looked at what a loss might mean for the nascent judgment preservation insurance market.
Today, we’ll look at the actual policy. At least, the part that is now public.
The case is back before Judge Kathryn Davis in the US Court of Federal Claims. A group of Quinn Emanuel’s clients last week asked Davis to trim the firm’s fee to something between roughly $12 and $23 million. Quinn Emanuel is still pursuing the entire $185 million.
The firm has already distributed the $185 million to its partners, the objecting clients have said. They want to know whether Quinn Emanuel’s insurance policy will cover any cash the firm may be forced to pay back.
The theory behind judgment preservation insurance is simple enough: If a policy holder’s requested fee is reduced, the insured will be reimbursed for that loss. What we don’t know in this particular case is, how much of the fee was insured.
At least a portion of the policy became public last week after Davis ruled in January that Quinn Emanuel must hand it over to the objecting class members.
The document that was filed almost immediately turned heads in the close-knit litigation funding and litigation insurance world. It showed a policy that seemed to provide only $25 million in protection. And that coverage kicked in only after the fee was reduced by nearly $10 million.
In other words, it looked like Quinn Emanuel could still be on the hook for the first $10 million in losses. Then the insurance policy would only pay $25 million of however much the total was reduced.
It led to speculation that, in the words of one litigation insurance expert, the firm was “totally underinsured.”
But, perhaps more likely, the confusion was caused by only a partial understanding of the policy.
The document that was filed is referred to as the “primary” insurance policy. A lawyer for the opposing health insurers, describing the filing, wrote that “all excess policies” followed the form of the primary policy.
Excess policies are not rare. They split the risk between a broader group of insurers. They would increase the insurance coverage for Quinn Emanuel and could, at least in theory, cover the entire award after the first $10 million in losses.
A spokesman for Quinn Emanuel did not respond to a request for comment on the insurance coverage. A lawyer for the objecting health insurers declined to comment beyond the filing.
The policy that was disclosed came with heavy redactions, including of information about who provided the insurance policy and how much it cost. That hints that the disclosure came after a back-and-forth between Quinn Emanuel and the objecting plaintiffs.
The objecting plaintiffs may have only filed the firm’s primary policy into the docket because it was enough to form the basis of their related argument: That the policy tied Quinn Emanuel’s hands from requesting “a reasonable fee.”
They cite the policy to argue that the insurance companies could seek to void the agreement if the firm did not “vigorously” pursue the award.
The policy has another relevant provision. It requires Quinn Emanuel to litigate the case “with the same zeal as if no insurance was in place.”
Under that hypothetical, Quinn Emanuel is doing pretty much what you’d expect. The firm is asking for the money it feels it earned. Quinn Emanuel lawyers have consistently argued they’re proud of their work and that the fee was exactly what they told clients they’d ask for when the case started.
It all gets into very interesting and untested questions about how insurance can skew incentives for litigants.
Tom Baker, a University of Pennsylvania professor who’s an expert in insurance, said he initially believed litigation insurance would skew more cases to reach judgments or appeals. Insurance holders would feel emboldened to take cases all the way. But in practice, he’s found it’s more likely to drive settlements right around the levels protected by the insurance policy.
“The other side knows there is no point in trying to settle for less than the insurance, because then it’s better to roll the dice and the policy holder can do better,” Baker said. “The insurer can’t make the policy holder take the settlement, but the insurer sure wants them to.”
The parties are far apart in the Quinn Emanuel case. The objecting class members have asked the court to slash the award by 87% to 93%. Quinn Emanuel wants the full thing. That suggests a settlement is unlikely, if it’s even possible. The judge will make the final call on a reasonable fee for class members.
My best guess? Quinn Emanuel likely has the vast bulk of the award insured.
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That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.
