What is Litigation Funding?

• Definition: Litigation funding, also known as legal financing or third-party funding, is a financial arrangement where a third party provides funding to a plaintiff or law firm to cover legal costs in exchange for a share of the financial recovery or settlement if the case is successful.
• How it Works: The funder covers legal fees, court costs, and sometimes living expenses for the plaintiff. If the case is successful, the funder receives an agreed-upon portion of the settlement or award.

Types of Litigation Funding

• Commercial Litigation Funding: This involves high-value disputes between companies or involving large sums of money, where funders provide capital to cover litigation costs.
• Consumer Litigation Funding: This involves individual plaintiffs who need financial assistance for their personal legal cases, such as personal injury claims or employment disputes.
• Single-Case vs. Portfolio Funding: In single-case funding, the funder backs only one lawsuit, while in portfolio funding, multiple cases are funded under a single agreement, spreading the risk.

Benefits and Risks of Litigation Funding

Benefits:

• Provides access to justice for those unable to afford legal fees.
• Shifts financial risk from the plaintiff or law firm to the third-party funder.
• Allows law firms to take on cases they might otherwise have to decline due to high costs.

Risks

• High fees or percentage of recovery may reduce the plaintiff’s final settlement.
• Funders may have influence over litigation strategy or settlement decisions, which could affect case outcomes.
• Not all cases are eligible for funding; only those with strong legal merits and high-value potential are usually considered.