Four Common Misconceptions About Litigation Finance
The more litigation finance grows, the more it is understood. But here are four misconceptions that still prevail about the field of litigation finance.
1. The underwriting process is long, tortuous, and highly invasive. This obviously depends on the funder that you are using and can even depend on outside factors such as how many cases the organization is currently reviewing. But it is likely to be rather quick (possibly days, more likely weeks) because financiers want to move quickly to strike a deal and they will have experience litigators helping them evaluate cases and make swift decisions regarding whether or not they will be investing.
2. Artificial intelligence runs the underwriting process. While artificial intelligence may be helpful for some areas of the legal field, deciding whether or not to invest in a case is an area that is still decided by humans. Each funding organization will take into account different factors, weighing each one, and considering all the facts before making any decisions. This type of analysis is not one that is very well suited for artificial intelligence as it varies so much. There is not a formula that could be used to say yes or no if a case qualifies for a particular financier.
3. Litigation financiers control the paths of the litigations that they fund. In general, after agreeing to fund litigation and signing a contract with specific terms, financiers take a back seat role. They will more than likely monitor the cases that they’ve invested in. But due to ethical and professional responsibility guidelines they will most likely not be involved in the litigation at all. They could potentially influence the litigation by retracting their funding but that is usually difficult to do (based on the terms of the agreement) and unlikely to happen.
4. Litigation financing is expensive for parties. Obviously, litigation financiers are trying to make money or else they wouldn’t be able to do this. However, the market is still growing, thus there is not an excess of competition so that parties can explore options before making a decision. Additionally, each organization may be able to offer slightly different terms so it is important to do the research. But at the end of the day, financiers want to receive good cases so hopefully they will be pricing fairly to stay engaged and involved in the market.
Topics: litigation finance, alternative litigation finance, third-party funding
Works Cited: David Lat, 5 Myths About Litigation Finance, Above the Law (June 5, 2018).
