Analysts at Morgan Stanley have predicted that increased litigation levels will emerge from the coronavirus (COVID-19) pandemic and its accompanying economic downturn.
Jonathan Molot, Co-founder and Chief Investment Officer of Burford Capital, confirmed to Morgan Stanley that his firm is currently seeing significant growth in the potential demand for litigation financing in the insurance space, although these enquiries are at a relatively early stage.
Based on their discussion with Molot, analysts believe that litigation trends seen during the 2007-08 financial crisis are now likely to repeat themselves in the COVID-19 context.
In particular, business interruption (with or without physical damage), trade credit insurance, business shutdowns by civil authority action and certain areas in the event cancellation space are likely to see increased litigation.
Morgan Stanley noted that while Burford Capital sees litigation opportunities in these lines of business, there might remain a number of other developments in lines not covered by funded litigation.
Molot observed that the majority of disputes in insurance would relate to insurers not providing cover when they stated they would, clear exclusion of certain risks (e.g. pandemic exclusion), and policies where the wording might be unclear.
But there might also be a number of scenarios that are hard to predict, such as those related to the definition of physical damage where it could be argued that for some policies, ‘contagion’ might include the effects generated by a virus unless otherwise specified.
Morgan Stanley believes that contract certainty will continue to be the main line of defence for insurers as judges tend to be in favour of policyholders when policy wording is ambiguous.