I came across a North Carolina Business Court order on a motion to compel that caught my attention. It looked like a discovery fight over privilege, engagement agreements, litigation strategy, and communications with third parties. But the underlying transaction involved Oxford Insurance Company issuing policies connected to a mass tort book of business. That led me down a rabbit hole of research into an area of insurance with which I am not familiar. The deeper I looked, the more the issue became apparent that while many in the insurance industry publicly condemn litigation funding as a cause of harm to our system of justice, parts of the insurance market are quietly underwriting, brokering, reinsuring, and profiting from the litigation-finance risks they denounce.
The case is Watts Guerra LLC v. Series 1 of Oxford Insurance Company NC LLC. The order I first reviewed was designated an “Order of Significance.” 1 The court noted that Watts Guerra invested in mass tort lawsuits brought by Gacovino, Lake & Associates, P.C., with the “Gacovino Book” having a purported value of more than $340 million. Watts Guerra paid $7 million to purchase twelve $10 million insurance policies from Oxford. The policies were intended to cover any shortfall between Watts Guerra’s expected $120 million payout from the Gacovino Book and the actual return as of September 15, 2024.
This is not the commercial property policy, business income policy, or liability policy most insurance professionals think about when they hear the word “insurance.” It is insurance tied to the economics of litigation. It appears to be insurance on the outcome or financial performance of a mass tort investment.
Insurance Business later reported the dispute in similar terms in “Captive Insurer Can’t Shake $116 Million Bad Faith Claims, Court Rules,” explaining that Watts Guerra bought specialty policies to protect a “bet” it made on mass tort litigation, paying $7 million for twelve $10 million policies from Series 1 of Oxford Insurance Company NC LLC, a special-purpose captive insurer licensed in North Carolina. The coverage, according to that report, was meant to pay if the return on the portfolio fell short of $120 million by September 2024.
AM Best also discussed Oxford’s book of business. It stated that Oxford’s financial guarantee policies had grown to become a larger part of its risk pool from a policy-limits perspective and had become difficult to model for tail risk in measuring risk-based capitalization. AM Best described the policies as “multi-year bank loan guarantees for law firms engaging in litigation finance.” 2
If the insurance product is a “multi-year bank loan guarantee” for law firms engaged in litigation finance, are we dealing with insurance, a financial guaranty, a surety product, a credit enhancement, a derivative-like risk transfer, or something else dressed up in insurance clothing? The answer matters. Labels are not just academic. They determine licensing, reserves, capital requirements, regulatory oversight, disclosures, claims handling duties, bad faith exposure, and whether the risk is one that insurance law should recognize and enforce.
The insurance industry has been loud about litigation funding. Swiss Re has published that third-party litigation funding is a fast-growing global industry with potentially harmful economic and ethical consequences. It has linked litigation funding to rising legal liability costs and social inflation. Chubb and Marsh McLennan executives have publicly pushed for reforms aimed at third-party litigation funding, contending that it turns tort litigation into an investment scheme and drives up insurance costs for businesses and consumers.
Yet at the same time, insurance markets have developed products specifically designed to support litigation funding and litigation investing. Willis Towers Watson markets “litigation and contingent risk insurance” for funders, law firms, businesses, private claimants, contingency-fee firms, and others with interests in plaintiff-side litigation. Its listed offerings include adverse costs cover, judgment protection, funding support, and risk-transfer solutions. Certum Group markets capital protection insurance, describing it as insurance that safeguards debt, equity, or hybrid capital invested in litigation against the risk of an adverse outcome. It says the product can protect capital in litigation portfolios and improve financing strategies.
Ashdown Litigation Partners put the point in business terms in an April 2026 article, “Making Litigation Finance Investible: The Case for Capital Protection – Ashdown Litigation Partners.” It stated that insurance-backed capital protection has transformed litigation funding “from a binary bet into a structured, credit-like asset.” The insurance function is not merely paying a defense cost or indemnifying a loss after an accident. It is helping turn litigation risk into an investable financial asset.
So, what should we call this? If a party has invested real capital into a litigation portfolio and buys coverage to protect against loss of that capital, one can argue there is an insurable interest. The purchaser stands to suffer a financial loss if the litigation portfolio underperforms. This is different from a stranger buying a policy on someone else’s life and hoping for an early death. Insurance law has long condemned that type of wager.
The harder question is whether the risk being transferred is one that should be treated as insurance. Traditional insurance spreads fortuitous risk. A covered building burns, a hurricane damages a home, a negligent driver causes injury. The policyholder is indemnified for loss. Litigation-finance insurance is more complicated because the loss may be tied to the performance of an investment, the timing of settlements, appellate outcomes, claim inventory quality, counsel’s strategy, funding agreements, borrower obligations, and the economics of a legal asset. At some point, insurance starts looking very much like finance.
I do not suggest that it is unlawful. It does make it worthy of scrutiny about how it is regulated.
One lesson from the Oxford dispute is that litigation-funding insurance may create its own discovery and privilege problems. The motion to compel order involved Oxford seeking documents concerning the fee agreement between Watts Guerra and Susman Godfrey, communications with third parties, term sheets, offers, business agreements, and actual or contemplated claims under the policies. The court found some materials relevant because Susman’s financial control, or lack of control, over negotiations bore on the competing explanations for delays in making a claim.
This is where the insurance industry’s public position starts to look conflicted. If insurers believe litigation funding is a harmful force causing social inflation, they should say so and support fair disclosure rules. If insurers believe litigation finance is a legitimate capital market that can be underwritten, priced, insured, and reinsured, they should say that too. What should not happen is for the industry to publicly denounce litigation finance as a societal evil while privately building products that make litigation finance more attractive to institutional capital.
Policyholders and the public deserve candor. Is litigation funding the villain driving an unfair civil justice system, or is it a risk class to be monetized by insurers? Is it a “toxic” influence on the civil justice system, or an emerging specialty line with premiums, commissions, reinsurance, and investment leverage? The answer cannot depend on whether the insurer is paying a claim or collecting a premium.
Insurance has a social purpose. It exists to provide security, spread risk, and make people and businesses whole after loss. When insurers begin underwriting the economics of lawsuits as investment assets, regulators should ask whether the product is adequately capitalized, properly classified, and honestly sold. They should also ask whether the insurer has the financial strength to pay when the litigation investment performs poorly. A policy that promises protection but lacks capital behind it is not risk transfer. It is marketing.
I am not writing this to condemn all litigation finance. In many cases, outside funding allows injured people, small businesses, and policyholders to fight defendants and insurers with far greater resources. There is nothing inherently wrong with capital helping level the playing field. But transparency and conflicts matter. When insurance companies enter this field, their own conduct deserves the same scrutiny they demand of others.
The Oxford litigation may prove to be just one dispute involving unique facts. But it opens a window into a larger trend. Litigation risk is being packaged, priced, insured, financed, and traded. Insurers are not merely complaining about that development. Many are participating in it.
The next time an insurance executive or lobbyist blames litigation funding for evils in America’s civil justice system, someone should ask a follow-up question: Is your company, your broker, your reinsurer, your captive, or one of your affiliates making money insuring litigation funding risks?
The answer may tell us far more than the speech.
Thought For The Day
“A contract of insurance upon a life in which the insured has no interest is a pure wager.”
— Justice Oliver Wendell Holmes, Grigsby v. Russell, 222 U.S. 149, 155 (1911).
1 Watts Guerra, LLC v. Series 1 of Oxford Ins. Co. NC, No. 25CV023398-910, 2026 NCBC Order 57, 2026 WL 1728925 (N.C. Super. Ct. June 13, 2026).
2 “AM Best Places Credit Ratings of Oxford Insurance Companies’ Members Under Review with Negative Implications.” Best’s News & Research Service. Mar. 01, 2024.
