Liberty, Insurers Take Hit on $1.6 Billion IBM Judgment Policy

Liberty Mutual has backed out of at least two potential litigation insurance deals after a $1.6 billion judgment it underwrote was reversed, according to three people familiar with the situation.

The company was among a group of insurance providers that issued policies covering the massive 2022 judgment for Houston-based BMC Software in a suit against IBM, according to two people with knowledge of the matter. An appeals court last week overturned the decision, siding with IBM and leaving Liberty and other insurers on the hook.

The judgment was insured for between $500 million and $750 million in total, according to people familiar with the situation, with Liberty covering between $100 million and $150 million of the policy.

The ruling has sent ripples through the growing judgment preservation insurance industry, in which underwriters offer policies to successful plaintiffs guaranteeing at least a portion of lower-court awards.

Some carriers in recent months have reduced the percentage of judgments they’re willing to cover and increased pricing, according to Jason Goldy, global team leader for Alliant Insurance’s Litigation & Contingent Risk Practice. Goldy spoke generally about the industry, declining to comment specifically on the IBM case and other cases.

“In the last six months you’ve seen these adjustments and I would think that you’re likely to see them accelerated if there are material losses,” Goldy said.

The people familiar with Liberty’s judgment insurance dealings spoke on condition of anonymity to preserve business relationships.

“Liberty Mutual Insurance does not publicly discuss individual commercial insurance customers,” said Richard Angevine, a company spokesperson. Lawyers for BMC from Bracewell LLP and White & Case did not respond to requests for comment.

At least one of the deals that Liberty backed out of was “sizeable,” according to a person familiar with the situation.

Michael Perich, head of litigation insurance at Lockton, said over the last year larger judgments have become more difficult—and expensive—to insure. Perich spoke generally about the judgment insurance landscape, declining to comment specifically on the IBM case.

He said he’s seen an uptick in the number of litigation insurance opportunities including portfolio transactions, in which policies are issued across multiple cases rather than for single lawsuits.

“The market is fluid and it’s proven the ability to adapt to things,” Perich said. “Nothing is set in stone. This is what we’ve noticed the past year or so but it can change over time.”

Massive Judgment

A federal judge in Houston ruled in May 2022 that IBM poached BMC’s software business with a mutual client, AT&T. The court ordered IBM to pay $1.6 billion to the KKR-backed company, an amount believed to be one of the largest ever judgments in a commercial dispute.

BMC later obtained insurance policies from Liberty and an unknown number of other carriers securing at least part of the judgment. The details of the coverage have not been made public.

These kinds of insurance deals have become more common amid the surge in litigation finance, a burgeoning industry in which outside funders invest in lawsuits. Judgment preservation insurance is offered as a hedge for investors, lawyers, or parties in cases that have already been decided by lower courts and are subject to appeal.

IBM appealed the BMC decision, arguing that it fairly won the business from AT&T. Lawyers for BMC in multiple court filings have generally acknowledged the role of insurers: “A group of insurers also has a financial interest in the outcome of this litigation.”

IBM was represented by Clement & Murphy and Yetter Coleman.

The US Court of Appeals for the Fifth Circuit shot down the ruling against IBM on April 30. A three-judge panel said the company lawfully obtained the AT&T business.

BMC indicated in a May 2 filing that it is likely to seek a rehearing in the appeals court.

Alliant’s Goldy said judgment preservation insurance deals will continue to get done.

“The market is still going to write the product,” Goldy said. “You just need to navigate risks through those hurdles or adjustments but the market will survive, it will continue, and it will adjust.”

The case is BMC Software v. IBM, 5th Cir., No. 22-20463, decision 4/30/24