What is Lawsuit Funding?

Lawsuit funding is a form of non-recourse financing where a third-party lender provides a cash advance to a plaintiff in exchange for a portion of their future settlement or court award. Because it is non-recourse, the plaintiff is not required to repay the advance if they lose their case. This type of funding can be particularly beneficial for individuals who are facing financial difficulties due to lost wages, medical bills, or other expenses related to their legal situation.

How Lawsuit Funding Influences

Settlement Negotiations

Provides Financial Relief and Reduces Pressure to Settle Early

One of the primary impacts of lawsuit funding on settlement negotiations is that it provides plaintiffs with financial relief, which can reduce the pressure to settle early for a lower amount. Often, defendants or insurance companies may attempt to leverage a plaintiff’s financial distress by offering a quick but inadequate settlement. Lawsuit funding can empower plaintiffs to withstand these tactics, allowing their attorneys more time to build a stronger case and negotiate a fair settlement.

Levels the Playing Field

Lawsuit funding can level the playing field between plaintiffs and defendants, particularly when defendants are large corporations or insurance companies with significant financial resources. These entities often have the means to drag out legal proceedings, making it difficult for financially strained plaintiffs to continue fighting for a fair settlement. With access to lawsuit funding, plaintiffs can afford to endure longer legal battles without compromising their financial stability, potentially leading to more equitable settlement negotiations.

Influences the Plaintiff’s Settlement Expectations

While lawsuit funding provides financial stability, it can also raise the plaintiff’s expectations regarding the settlement amount. Knowing they have financial backing, plaintiffs might hold out for a higher settlement than they would have otherwise, feeling less pressured to accept a lower offer quickly. This increased expectation can sometimes lead to prolonged negotiations, as defendants may be unwilling to meet the higher demand. However, this dynamic can also encourage defendants to offer more reasonable settlements earlier to avoid the costs and uncertainties associated with extended litigation.

Impacts Defendant’s Strategy

Defendants are often aware when a plaintiff has obtained lawsuit funding, and this knowledge can impact their settlement strategy. Realizing that the plaintiff is not under immediate financial pressure, defendants may anticipate longer negotiations and prepare for the possibility of trial. In some cases, this can lead to more aggressive defense tactics, but it can also result in more sincere settlement offers if the defendant wants to avoid the costs of a lengthy legal battle.

Encourages a Focus on Case Merits

Since lawsuit funding companies typically conduct a thorough review of the plaintiff’s case before providing an advance, their involvement can signal to defendants that the case has merit. Knowing that a third party has invested in the plaintiff’s case may encourage defendants to consider the strengths of the case more seriously during negotiations, leading to more realistic settlement offers that reflect the actual risks of going to trial.