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Litigation funding is not insurance

21 September 2021 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

In the High Court Steinhoff judgment, it was argued that the litigation funding  agreement between the class representative and the funder was a contract of insurance in terms of which the funder provides indemnity insurance to the class representative in consideration for the funder being paid a premium, being a percentage of the ultimate reward.

It was therefore argued that because the funder was not licensed to conduct insurance business in terms of the relevant insurance legislation, the funding arrangement was unlawful and could not be sanctioned.

The court disagreed and found that the arrangement is not a contract of indemnity insurance.

Any payment to the funder is an uncertain event but a contingency undertaking by the litigant to make a payment is not an obligation to pay a premium as that term is defined in the Insurance Act.

Nor, said the court, upon proper characterisation is the agreement one of insurance.  The central feature of the agreement is that the funder in consideration of its funding of the class action will be entitled to a percentage of any award or settlement as sanctioned by the trial court.  The indemnification of the class representative’s costs is an important but an ancillary feature of an agreement to fund litigation on risk for a return.

First published by: Financial Institutions Legal Snapshot

 

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