The pros and cons of litigation funding in personal injury cases
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In recent years, litigation funding has emerged as a significant player in the legal landscape, particularly in personal injury cases. This innovative financial model allows plaintiffs to secure funding for their legal expenses before a case is resolved.
Although it presents numerous benefits, there are also disadvantages that prospective claimants need to take into account. In this article, we will examine the advantages and disadvantages of litigation funding in personal injury cases. This knowledge will aid you in making a well-informed choice should you encounter similar situations.
What is litigation funding?
Litigation funding, also known as legal financing or lawsuit funding, involves third-party companies. They provide financial assistance to plaintiffs in personal injury litigation to help cover legal costs associated with pursuing a lawsuit.
In return for their assistance, funders typically receive a portion of the settlement or judgment if the case concludes successfully. Importantly, if the plaintiff does not win their case, the funder bears the financial loss and is unable to recover their investment.
This industry is rapidly expanding. According to GlobeNewswire, the global litigation funding investment market was valued at approximately USD 18.2 billion in 2022. It is projected to grow at a compound annual growth rate (CAGR) of 13.2% through 2028.
The pros of litigation funding
Litigation funding presents numerous significant benefits for plaintiffs as they navigate the challenging and often costly legal landscape.
Access to immediate capital
One of the most significant advantages of litigation funding is that it offers plaintiffs immediate access to capital. As noted by Russell & Hill, after an accident, medical expenses, lost wages, and other financial burdens can accumulate rapidly. This can lead many individuals to experience significant financial strain while waiting for their cases to be resolved.
Furthermore, U.S. News & World Report highlights that hiring attorneys can be expensive. The national average for legal fees reached $327 per hour as of August 2023. With numerous court appearances, these costs can quickly escalate. Litigation funding helps cover these expenses, relieving financial pressure and allowing plaintiffs to concentrate on their recovery.
No risk of repayment if you lose
Unlike traditional loans, litigation funding does not require repayment if the case is unsuccessful. This feature provides a safety net for plaintiffs who might otherwise be hesitant to pursue a claim due to financial concerns. If the case doesn’t yield a favorable outcome, the plaintiff walks away without the burden of debt.
Levelling the playing field
Litigation funding can help level the playing field between plaintiffs and well-funded defendants, such as large insurance companies. With access to capital, plaintiffs can invest in essential resources for their case, such as expert witnesses, quality legal representation, and thorough investigations. This support can lead to a more equitable litigation process.
Encouragement to pursue legitimate claims
Knowing that financial support is available may encourage plaintiffs to pursue legitimate claims that they might have otherwise dropped due to the costs involved. This can lead to increased accountability for negligent parties and ultimately promote justice.
The cons of litigation funding
While litigation funding offers several advantages, it also comes with its own set of drawbacks that plaintiffs should carefully consider.
Cost of financing
While litigation funding provides necessary support, it can be expensive. Funders typically charge a percentage of the settlement or judgment, which can significantly reduce the amount that plaintiffs receive.
According to a report from Forbes, a study found that plaintiffs typically retain only 43% of the settlement amount when litigation funds are involved. Moreover, the involvement of a funding company can extend a case’s duration, potentially delaying settlements compared to those without funding. This structure raises important questions for individuals considering litigation funding, as they must weigh the advantages against the potential financial repercussions.
Loss of control over case decisions
When engaging with a litigation funder, plaintiffs may find that their control over case decisions is diminished. Funders often want to be involved in key strategic choices, which can lead to tensions between the plaintiff and the funding company. This loss of autonomy may not sit well with all plaintiffs, especially those who wish to maintain control over their legal journey.
Not all cases are funded
Litigation funding is not guaranteed. Funders typically evaluate cases to determine their viability before committing funds. If a plaintiff’s case is deemed too risky or lacking in merit, they may be denied funding. This can leave them without the financial support they were counting on.
Possible impact on legal ethics
The rise of litigation funding has raised ethical questions within the legal community. Concerns include potential conflicts of interest and the influence of funders on case strategies. Some legal professionals worry that funders may prioritize their financial returns over the best interests of the plaintiff, leading to ethical dilemmas.
FAQs
How does litigation funding work?
The process starts with the plaintiff applying for funding and providing details about their case. The funding company then evaluates the case’s strength and potential for success. If approved, the plaintiff receives funds to cover legal expenses, which are repaid with a percentage of the settlement if the case is successful. If the case does not succeed, the plaintiff is not required to pay anything to the funder.
Are there potential risks when seeking funding from different sources?
Yes, litigation funders do not all maintain the same standards of transparency and ethical practices. It’s essential for plaintiffs to thoroughly research potential funders to verify their reputation and ensure they provide equitable terms. Partnering with a reliable funder can greatly influence the overall experience and success of the funding agreement.
Can funders withdraw their support once funding is approved?
Once funding is approved and the agreement is signed, funders typically cannot withdraw their support unless the terms of the agreement allow for it. However, any significant changes in the case’s circumstances or its legal strategy could prompt a reevaluation.
Overall, litigation funding can serve as a valuable tool for plaintiffs in personal injury cases. It provides quick access to capital and helps balance the advantages that well-funded defendants may have. However, it also has its drawbacks, such as elevated expenses and a potential reduction in the plaintiffs’ control over legal strategies.
Before pursuing litigation funding, plaintiffs should carefully weigh these pros and cons. They should also consult with their legal counsel to determine the best course of action for their unique situation.
By understanding the intricacies of litigation funding, personal injury victims can make informed decisions that support their pursuit of justice and financial recovery.
