Every answer and its explanation appears here once you have finished the path. Each one then links to the matching glossary entry, where the concept is set out in full with its worked example.
1. A pending dispute forms a third category. What distinguishes it from both an unknown liability and a tax position?
It is known, therefore outside the warranty policy, but the facts are disputed and the outcome is distributed rather than binary
A tax position insures a legal conclusion drawn from facts everyone knows; here the facts themselves are disputed, and the outcome is not yes or no but a distribution of possible amounts. That is what makes it harder to rate than a legal opinion, not its size. Believing a dispute before a court is uninsurable by nature closes a market that exists and works, and leaves the risk where it blocks the deal.
Glossary entry →2. What does a contingency insurer actually buy, beyond the legal analysis of the case?
A distribution of outcomes and the parties' future behavior, which is harder to rate than a legal opinion
A tax position is underwritten on a fixed line of reasoning; a dispute is underwritten on what people will do, notably on how the opponent will run its own case. That second component is what makes rating uncertain and explains the severity of selection. The answer limiting cover to the adverse judgment risk describes a possible wording and not the product itself; the one limiting it to a settlement credits the insurer with a preference which, if it existed, would be exactly the moral hazard the module flags.
Glossary entry →3. The insurer asks to read the analysis notes of the insured's lawyers. Where is the difficulty?
The disclosure the insurer needs can forfeit the privilege protecting the defense it insures: it has to be arranged, it is not a formality
The insurer cannot underwrite without reading, and reading can destroy what gave the case its value: it is a contradiction peculiar to this product, addressed by how the communication is arranged and not by a confidentiality clause. Believing it settled by the insurance contract, as another answer suggests, means invoking an agreement between two parties against an opponent who is not one of them. Invoking reliance imports here a due diligence mechanism, real elsewhere and unrelated to protecting privilege.
Glossary entry →4. The retention is carried by the buyer, while the seller keeps conduct of the proceedings. What does that structure produce?
Moral hazard returns intact: a retention only disciplines the party that carries it and decides, and here the two are separated
A retention is an alignment tool before it is a sharing of burden: it works because whoever decides knows they will pay the first euros. Separate the decision from the carrying, and all that remains is a cost for one and a freedom for the other. That is the check to run before finding a structure elegant, and it fits in one question: who conducts, and who pays the first slice. The answer seeing a satisfactory alignment describes the structure's intention, not its effect.
Glossary entry →5. The dispute concerns a patent, and an adverse outcome would bar a product line from sale. What can the policy do?
Nothing on that point: a risk of being barred from operating is not a money risk, no policy gives a product line back, and it is handled in the deal
The distinction is blunt and must be made early: a policy turns uncertainty into a bounded cost, and it can do nothing where what is at stake is not an amount but the very ability to operate. The treatment then lies in the deal's structure, price, perimeter or walking away, and not in a cover. The answers quantifying future margin or adding a sub-limit look for a sum where the problem has none, and they have the drawback of reassuring an investment committee about a risk that is not addressed.
Glossary entry →