As the legal field continues to grow and progress, litigants have come up with new ways to fund their cases and pay the legal fees necessary to get them to court. One such method is litigation financing which involves third-party investors who fund a plaintiff’s case in exchange for a portion of the damages. While litigation financing is a somewhat high-risk investment, it is legitimate and can provide significant payoffs.
In the past, litigation financing was not exactly legal. Historically, third parties were not permitted to have a financial stake in the outcome of legal disputes. However, things have changed in recent years, and many plaintiffs, particularly in high-stakes cases with high legal fees, rely on investors to fund their lawsuits. Although litigation financing is somewhat risky for investors, plaintiffs sometimes cannot bring their cases to court without them.
How Does Litigation Financing Work?
Litigation financing is a form of investing where third parties will fund litigation and lawsuits in exchange for a cut of the damages awarded to the plaintiff. This kind of financing works like traditional investments in the stock market or similar business transactions. Investors provide the funding in the hopes of reaping the benefits. The only difference is that investors are funding litigation rather than business ventures.
Litigation financing does not make sense in every case and is arguably more appropriate in expensive cases worth a lot of money. Small claims cases are unlikely to be the subject of litigation financing. Investors are more likely to fund larger, multi-million dollar cases. Settlements take a long time to reach in these cases, and the longer settlements drag on, the more money they cost, making litigation financing a viable opportunity.
Many wonder whether litigation financing is a legitimate form of investing in 2022. While some people have raised ethical concerns over third parties profiting off lawsuits and the outcome of legal disputes, we cannot ignore the benefits. Plaintiffs who might not otherwise have their day in court may settle legal disputes thanks to litigation financing.
Do Plaintiffs Benefit from Litigation Financing?
Litigation financing can help the parties to a lawsuit in tremendous ways. For example, a personal injury lawyer might need the additional funding provided by third parties to pay for expensive expert witnesses, thereby turning the tides of the case in their favor. In other cases, a plaintiff cannot afford the legal fees necessary to pay their legal team, relying on litigation financing to fund the case.
Plaintiffs rely on third-party funding via litigation financing in more ways than one. Often, plaintiffs need the damages awarded by a lawsuit to get back on their feet. For example, someone suing for medical malpractice might be so injured that they can no longer work and need compensation from a lawsuit to continue living and providing for themselves.
The funding from litigation financing can also help uncover new evidence for plaintiffs. Investigation in legal disputes often takes time and costs a lot of money. For example, private investigators can help plaintiffs uncover important evidence, but their services do not come cheap. Similarly, experts might need to review the case details and render an opinion. Experts are known to be expensive and often drive the costs of litigation way up. Litigation financing helps to make things like investigators and experts more accessible to plaintiffs in need.
Risks of Litigation Financing in 2022
Although litigation financing is a legitimate way to invest and helps many plaintiffs get their cases off the ground, it is not without risks. Investors only get their investments back and make a profit if the plaintiff wins their case. If the plaintiff loses, they are not awarded any damages, and the investors lose money.
Another significant risk is the time it takes to complete a case. For example, if an investor is hoping for a settlement to get a return on their investment, they might have to wait a while. It often takes a long time to get payments for medical bills, pain, suffering, and other damages. Sometimes, investors wait years for a settlement or verdict to lose their initial investment.
One good example of high-risk cases is wrongful death lawsuits. These cases often take a long time to complete and tend to come with a significant price tag for plaintiffs. Wrongful death cases often take so long because they are worth tremendous money. This is often good for investors looking to invest in litigation financing, but a win is not guaranteed.
