The Advantages Of Litigation Financing To Personal Injury Plaintiffs
Third party funding in personal injury litigation is a relatively new concept that will likely become more common in the upcoming years. Third party litigation funding has the potential to aid plaintiffs who cannot afford litigation against defendants who are often large corporations and repeat players. When plaintiffs do not accept a settlement, it can take years to see out the litigation and receive any sort of payment. The situation is exacerbated by the fact that personal injury plaintiffs regularly endure other hardships including loss of wages, medical bills, pain and suffering, and emotional distress. [i].
Litigation funding addresses the plight plaintiffs are in by providing non-recourse loans in exchange for a percentage of any recovery. The money, which is paid to a plaintiff at the outset, enables a plaintiff to afford a lengthy lawsuit. If a plaintiff is unsuccessful, the funds that were advanced do not have to be paid back. Third party funding may be a more realistic option for some plaintiffs as opposed to the conventional loan in that third party funding process does not entail conducting background checks, credit checks, or obtaining proof of employment as the funds are not advanced on the plaintiff’s ability to repay them. Rather, the determination to provide funding is based on the value of the claim and its likelihood of success. Thus, the involvement of a third party litigation finance firm tends to indicate the strength of a claim to the opposing party. [ii].
In the absence of litigation funding, personal injury defendants often take advantage of the unequal bargaining power and pressure plaintiffs into accepting a settlement in an amount that is less than what they would have received had they taken the case to trial. The delay and uncertainty of the outcome at trial make litigation an unappealing option for plaintiffs who are not prone to taking risks and need money right away. Litigation funding therefore has the effect of ensuring plaintiffs a higher, fairer payout and minimizing the risk of a plaintiff going into debt or claiming bankruptcy.
While a litigation finance firms can choose to fund many different types of plaintiffs (individuals, corporations, classes, or sovereigns) funding individual plaintiffs will result in the most dramatic effects. The parties to a personal injury action are usually individual plaintiffs against some corporate entity as the defendant consisting of insurance companies, hospitals, businesses, employers, or manufacturers. Personal injury defendants, due to the nature of their business, are often placed in a situation where they are found defending themselves, thereby making them a repeat player. When an individual plaintiffs pairs with a litigation funder, they not only receive money, but also they gain the status and experience of the funder. This collaboration between an individual plaintiff and a third party litigation funder modifies the plaintiff’s position from a one time player to a modified one time player, increasing the plaintiff’s bargaining power. [iii].
Lessening this gap between the parties’ bargaining power tends to produce a number of positive externalities in personal injury lawsuits. For example, where an insurance company believes an individual plaintiff has a strong claim against it will more likely offer a higher settlement amount early in the negotiation process as opposed to the normal practice of pressuring a plaintiff to accept a low ball settlement. Faster settlements will increase efficiency; more just settlements will yield happier plaintiffs; and more settlements will prevent the courts dockets from being clogged. [iv].
Topics: Personal Injury, Plaintiffs, Litigation Finance, Bargaining Power
[i]. Yuliya Chernova, The Wall Street Journal, Personal Injury Plaintiffs May Benefit from New Litigation Funding Marketplace, Sept. 16, 2015, http://blogs.wsj.com/venturecapital/2015/09/16/personal-injury-plaintiffs-may-benefit-from-new-litigation-funding-marketplace/.
[ii]. Maya Steinitz, Whose Claim Is It Anyway? Third Party Litigation Funding, 95 Minn. L. Rev. 1268, 1305 (2010-2011).
[iii]. Id.
[iv]. Id.
