Insurer’s Dispute Trips Up Big Names in Litigation Finance Deals

A dispute involving an insurance company that specializes in niche policies has the potential to disrupt hundreds of millions of dollars worth of litigation funding and patent deals, entangling some of the bigger names in the nascent industry.

The insurer, Oxford Risk Management, has been sued by three policy holders who say it deceived them in a bid to avoid taking a hit to its credit rating.

Similar to private equity, the $15 billion litigation finance industry has long enjoyed a blanket of confidentiality as it inks deals to bankroll law firms and invest in legal matters. The Oxford dispute offers an unusual window into the complex mechanisms used by funders to protect their investments and the ways such structures might go awry.

Oxford, a Maryland-based insurer, put out policies for about 20 different funding arrangements, pledging to back them with policy limits up to $1.3 billion. The deals were insured through captive insurance, a nontraditional structure in which policyholders essentially form their own insurance company to hedge against risks.

But when credit rating firm AM Best warned Oxford in 2024 that it could be overextended, the company moved the policies offshore, to a new insurer it established in Bermuda, allegedly to isolate them from its other holdings and minimize the rating impact. It also lowered the reinsurance limit to $170 million without telling the policyholders, effectively erasing more than $1 billion in promised coverage, according to the suits.

Oxford sought validation by asking North Carolina Department of Insurance regulators to approve its offshore move. Instead, in early May, they rejected it, and Oxford has since decided to unwind the structure, according to people familiar with the matter who declined to be named.

That ostensibly puts its rating back in jeopardy, which could potentially scare away new or even existing clients. It also calls into question whether it can pay out on claims, which could have ripple effects for the businesses paying for its insurance.

Oxford’s clients, according to the lawsuits, have included litigation finance industry and patent heavyweights such as VLSI Technology, a private equity portfolio company of Fortress Investment Group managed funds, and entities associated with alternative investment manager Gramercy.

Oxford did not respond to requests for comment, but in court filings its stance has been that the transactions were permissible under its agreements with the policyholders. In a motion to dismiss, Oxford’s attorneys wrote that the plaintiffs’ complaints did not support the notion that anything improper occurred.

With its captive insurance model, Oxford allegedly pooled and shared the clients’ risks among all of the other captive insurance companies it managed. The captive typically gets reinsurance, which is insurance for an insurance company, to protect those policies.

Doing so provides policyholders with more affordable and predictable premium costs. It also allows them to insure risks that would otherwise not be insurable in the open commercial market. But, as the lawsuits show, it also comes with risks.

Even a victory in court wouldn’t erase the impression that Oxford was creating flimsy insurance structures, said Tom Baker, a professor at University of Pennsylvania Carey Law School who specializes in insurance law. “Even if it’s set up so that it mimics regular insurance, it’s still not regular insurance,” he said.

Captive Insurance

The insurance industry paraded into litigation finance with lofty promises. It poached talent from funders and advertised structures that would protect investments. Since then there have been huge losses that caused insurance companies to pay out and even pull out of the market. While everyone was bullish at the beginning, there have been major adjustments in pricing and usage.

“The contingent liability space is still fairly new,” said Rebecca Berrebi, a litigation finance broker and consultant. “There’s going to be a learning curve and there are going to be mistakes and it can only sort of improve and become more sophisticated over time.”

People working in the funding and insurance space say most funders typically pay for traditional insurance policies that offer claimants a return of the investment and might offer an elevated return.

Captives don’t promise the same comfort level. They are often used by Fortune 500 companies as self-insurance to cover workers’ compensation claims or by hospitals that need medical malpractice insurance for their doctors and nurses. Captives can purchase reinsurance to mitigate risks and are subject to state regulation where they are licensed — but they also can be formed outside the US.

Each individual investment is called a cell, a structure meant to protect each participant from the risks of other participants. This means if one cell had issues, such as inadequate capitalization or insolvency, it should not affect the other cells.

Oxford, which specializes in captives, allegedly inverted this concept and let each cell share the risk of all of the other cells.

Oxford pitched many brokers on its captive structure, but many turned them away because of concerns about its solvency if there were claims, according to one person in the industry who asked not to be named due to confidentiality agreements.

In one of the complaints, Hazel Partners, a Delaware-based limited liability company, says it joined Oxford’s captive insurance pool after loaning a borrower $250 million. Oxford initially formed the insurance pools in North Carolina and Tennessee, states seen as favorable for captive insurers.

Hazel eventually informed Oxford that its borrower was faltering and that Hazel would likely be filing a claim by the end of 2025 for as much as $200 million. Then it discovered that’s $30 million more than Oxford had pledged to cover in the offshore policies.

“There is a very real risk of insolvency here and quite frankly, it could happen at any moment,” Hazel Partners lawyer Michael Doluisio of Dechert LLP said during an April hearing. “If the Bermuda insurer goes insolvent, it would be really difficult, if not impossible, to unscramble the eggs.”

The cases are pending in Delaware Chancery Court

Photographer: Pat Crowe Ii/Bloomberg via Getty Images

Hazel Partners’ LLC registration papers don’t identify its owners. And its complaint doesn’t identify the borrower beyond describing it as “a public company that derives revenues by bringing litigation to recover on claims assigned by Medicare Advantage health plans against insurers that should have made medical payments instead of assignors.”

This description matches MSP Recovery, also known as LifeWallet, a company started by John Ruiz, a high-profile Florida lawyer known for his speedboat company, affluent lifestyle, and as a major booster for University of Miami athletics. One of the other lawsuits against Oxford references MSP as holding two Oxford policies.

LifeWallet was valued at more than $32 billion when it went public through a special purpose acquisition company in 2022. But the company’s stock price plummeted after it was listed on the NASDAQ exchange. It reported a net loss of $236 million for the first quarter of this year.

It has also become the target of investigations by the Securities and Exchange Commission and the US District Court for the Southern District of Florida. In the company’s May 2025 Quarterly Report, it said it believes that “the investigations will be resolved without any material developments, however there can be no assurance as to the outcome.”

Hazel Partners’ lawsuit accuses Oxford of fraud, breach of contract, unjust enrichment and other wrongdoing.

Attorneys for Hazel Partners did not respond to a request for comment. Ruiz did not respond to a request for comment. MSP Recovery declined to comment.

The Dispute

Oxford’s issues seeped into the public domain just months ago; the underlying issues simmered much longer. It established its programs in North Carolina and Tennessee in 2021 when the company had an A rating from AM Best, the most prestigious rating agency for insurance companies in the United States.

But in March 2024, AM Best put Oxford’s rating under review because of its litigation finance policies. “The company has deviated from its original business profile and has become an insurer of large, financial guarantee/judgment preservation policies, which is a highly specialized, niche line of business involving multiyear policies and high limits exposure,” AM Best said in a press release.

Oxford won back an A rating in January 2025, after the rating agency said Oxford had taken steps to reduce its exposure from loans to law firms engaging in litigation finance. (A representative for AM Best declined to comment, referring Bloomberg Law to its press releases.)

The complaints assert Oxford did that by disentangling some of the higher-risk policies and moving them as a group into the newly formed Bermuda captive insurance company.

That was news to some of the impacted policyholders.

In the first lawsuit, filed in February, financial services Company Dorset Peak Solutions alleged it paid Oxford more than $77 million for insurance only to have the insurer illegally offload its policies without seeking its approval.

“This transaction was so one-sided that no person acting in good faith pursuant to the Nominal Defendants’ interest could have approved it,” wrote Dorset Peak attorney Elliott Kroll of ArentFox Schiff.

Kroll also wrote that the new Bermuda insurance company “does not, and will not, have the financial wherewithal to establish and maintain a solvency margin adequate for the risks of the holders of the Policies.”

Dorset Peak has ties to prominent players in the litigation finance space, including the co-founders of legal finance company JBSL. Its CEO, Jack Leventhal, also serves as senior managing director and head of investment banking at CAC Group, a specialty insurance brokerage firm.

CAC Group set up some of the Oxford insurance policies at issue in the dispute, according to people familiar with the matter. CAC and JBSL did not respond to requests for comment.

The lawsuit also said some of the industry’s better-known names had policies with Oxford.

Besides VLSI Technology and Gramercy, which two years ago announced a $552.5 million loan to law firm Pogust Goodhead, its client list includes Texas-based law firm Pulaski Kherkher and two banks, MVB Bank, Inc. and First Financial Bankshares Inc.

Fortress declined to comment. Gramercy declined to comment on the litigation. Pulaksi, MVB and First Financial did not respond to requests for comment.

After Bloomberg Law reported details of the Dorset Peak lawsuit, the plaintiffs asked the presiding Delaware judge, Vice Chancellor Bonnie W. David, to seal the complaint and associated exhibits because they reference information subject to confidentiality agreements and contain sensitive and non-public business information. David agreed.

Any new public filings in the case will also redact the names of policy holders.

VLSI filed a similar suit against Oxford in March, the same month Hazel Partners did. Its lawsuit says it became an Oxford client in 2021 and was hoodwinked about the devaluation of the policies.

“This is nothing other than an unlawful and self-interested scheme,” VLSI lawyers wrote in the complaint, “in which ORMG [Oxford Risk Management Group] represented and sold VLSI a Ferrari and then secretly dismantled the vehicle into a Yugo.”

Together, the three entities sought a temporary restraining order to stop Oxford from moving the policies to Bermuda. They also filed a motion for expedited trial.

In a hearing in April, the vice chancellor granted the request for an expedited trial but denied a motion for a restraining order.

“It’s not clear to me that such relief would avoid any irreparable harm occurring between now and when a preliminary injunction hearing or trial would take place,” David said.

Weeks later, the North Carolina insurance regulators rejected Oxford’s request to approve its offshore policy transfer. A representative for Dorset Peak said the insurance department’s rulings “vindicate Dorset Peak’s claims that ORMG engaged in an illegal, impermissible scheme.”

The department declined to discuss its dealings with Oxford “due to confidentiality statutes that involve captive applications,” spokesman Jason Tyson said.

It’s still unclear if or how Oxford’s agreement to move the policies out of Bermuda could affect, or even end, the litigation. The case is expected to head to trial this year, but no trial date has been set.

Regardless of how the litigation ends, Baker said, the dispute doesn’t look good for Oxford. “That suggests to me that they didn’t have less painful ways of dealing with the problem,” he said.