Only 9% of companies that win a judgment receive their payout from the losing party by the agreed-upon deadline, research shows. But Appian, a process automation software company that won $2 billion in a trade secret case last year, knows that it will get at least $500 million of its judgment, no matter what happens.
That’s because a judgment preservation insurance policy Appian took out after its trial court victory ensures that, even if the losing party fails to pay, or it loses the case on appeal or has its judgment reduced, it will get that $500 million.
“Appian’s policy effectively sets a new floor on the amount of money it could receive from the civil case,” The Wall Street Journal says in a report.
Market cap benefit
Appian sued Pegasystems, a rival software company, three years ago, saying a government contractor shared trade secrets with it. A jury last year sided with Appian and awarded it $2.036 billion. Pegasystems appealed, and oral arguments before the Virginia Court of Appeals are scheduled for next month.
But Appian in a sense has already won, because that guaranteed $500 million is now built into its valuation regardless of what happens on appeal and whether or not Pegasystems actually makes good on the judgment.
“You have to think about this as a real, accretive item to our market cap,” Appian’s Chief Financial Officer Mark Matheos told the Journal.
Gil Luria, an analyst at the investment firm D.A. Davidson, says the $500 million increases the present value of the company by $5 a share, the Journal reported.
Pricey policy
Appian went public in 2017 and has yet to turn a profit. Last year it reported losses of $42.4 million on $468 million in revenue.
To get the insurance, it paid a syndicate $57.3 million, an amount that’s inclusive of a 9.8% premium, taxes and a brokerage fee, the Journal reported based on a regulatory filing.
Going after judgments isn’t cheap. Almost 75% of in-house legal chiefs in a Burford Capital survey say they hesitate to go after money they’re owed from the losing party because it’s too expensive.
Some companies that take out the insurance borrow against it to help cover costs during the litigation, but Appian isn’t doing that, according to the Journal.
Borrowing against a judgment preservation insurance policy isn’t the only way to overcome the cost hurdle; companies can work with a third-party partner, like a litigation finance company, to go after judgments.
Almost two-thirds of the in-house legal chiefs surveyed by Burford Capital, a litigation funder, say they’re open to working with a third party to get the judgment they’re owed, mainly to get access to liquidity while they’re pursuing their judgment. It also shifts a portion of the risk to the third party.
By going the insurance route, Appian is taking its own approach to this third-party strategy.
“I think where this [insurance] product is most appealing … is taking a little bit of that risk off the table,” Matthew Grosack, a partner at the law firm Holland & Knight, told the Journal.
