Julia Gewolb is Validity’s director of underwriting. Working across the organisation, Julia is responsible for ensuring an effective review process to evaluate case merits during the diligence phase of the litigation investment. With her background in complex commercial litigation, she additionally helps offer legal advice on investments to the entire Validity team.
What criteria do you look at when deciding which cases to fund?
At Validity, we aim to move quickly to get clients an answer as to whether we can help fund their case or not. We first screen cases to ensure that they meet our basic criteria in terms of claim type, jurisdiction, proposed funding amount and estimated damages. If a case looks like a potential fit, we will then focus more intensely on the claim merits, the strength of counsel and in many cases the likelihood of an early settlement.
How does your legal experience complement your third-party funding practice?
I don’t think anyone could do litigation funding well without prior legal experience. It would be far too difficult to assess the risks of litigation, to test the reasonableness of the damages estimates you’re provided, to get a sense of the lawyer’s abilities and to have a sense of where a case could or should settle at the end of the day without having practised as a litigator yourself.
As director of underwriting at Validity Finance, how has covid-19 impacted your work and the underwriting aspect of litigation funding in general?
From an underwriting perspective, the biggest impact is that covid-19 has made it even harder to estimate when a case is likely to resolve. How long a court will take to rule on a key motion or schedule a trial is always difficult to estimate with any kind of precision, and it’s a key underwriting question because a delay of even months can significantly impact a funder’s internal rate of return. During the pandemic, even the courts couldn’t say for sure when trials would resume, so there was a great deal of uncertainty. Ultimately, though, we were pleased with how many cases were able to progress in discovery and motion practice, and we’re starting to see a broader resumption of jury trials. The impact on our portfolio did not end up being too large, and in truth the situation led us to take a long, hard look at our underwriting approach to duration. We now feel more secure about how we protect ourselves against unanticipated delays generally.
What types of cases would you like to see more of?
I would like to see more funded cases being brought by well-resourced plaintiffs, such as large corporations with sizeable litigation budgets. The reason is that litigation funding traditionally was touted as a way of levelling the playing field for smaller plaintiffs, but the truth is that it’s a fantastic tool for any plaintiff, large or small, seeking to manage litigation risk and cost. I think the legal market is slowly awakening to that realisation, and that we will start to see more demand from general counsel who technically have the resources to pay counsel’s fees but who see litigation funding as a way to unlock more value for their companies.
What trends do you see in the third-party litigation funding market at present?
I think we’re going to see a continued expansion of the market in terms of the types of claims, law firms and clients interested in using funding. There is so much untapped potential, and the industry is in an exciting place where it has grown sufficiently established and sophisticated that funders can really rise to the occasion and meet all kinds of new demands. Industry experts have been anticipating a wave of bankruptcy litigations for some time as the next new trend in the market, but I would not be surprised if the industry’s growth were much broader over the next few years.
On the underwriting side, the buzz has been about the use of artificial intelligence and data analysis in funding, but I think we haven’t yet reached a point where those tools are playing a major role.
The insurance market has been severely impacted by covid-19. Have you seen a shift in your portfolios to reflect the increasing number of claims being brought by businesses?
The truth is that the value of any given business interruption claim is heavily dependent upon the specific insurance policy at issue and, frankly, the jurisdiction in which the case is heard. The courts are still navigating some of the more novel questions posed by these cases. So, while we have certainly seen rising demand in this area and have taken a close look at a number of cases, we continue to apply our typical underwriting criteria and to be selective about what we fund.
To what extent has the market moved away from single case funding to portfolio funding?
We continue to see strong demand on both the portfolio and the single case side, so I wouldn’t say there has been any significant movement across the two categories. On the portfolio funding side, there perhaps has been more demand for funding from larger firms in recent years. Traditionally, portfolio funding was seen as a great tool – which it still is – for smaller boutiques needing to manage cash flow or fund growth, but today even Am Law 100 firms are interested in using funding to manage contingency risk and grow those portfolios, among other things.
What advice would you give to a lawyer looking to move into third-party funding?
Make sure you enjoy thinking hard not just about litigation merits, but about the business of law – in particular, what helps lawyers and clients alike reach a place where the cost and management of litigation is no longer an obstacle to pursuing a claim. If you can learn a bit of financial modelling, that is a great help, too.