Litigation Finance Continues to Expand its Reach

Litigation Finance has exploded since the pandemic spurred massive shutdowns and kickstarted a flurry of litigation. The practice of third parties funding meritorious legal action in exchange for a share of the award is expected to become better understood and more utilized in 2021.

Bloomberg Law explains that while much of the rest of the world is taking steps to regulate litigation funding, the United States has eschewed regulation, for the most part. We’ve seen guides for best practices, but very little in the way of state or federal law impacting the practice. In fact, what little legislation there has been, has embraced litigation funding rather than inhibited it—like striking down antiquated champerty laws, for example.

That said, the industry, on the whole, is moving toward transparency and disclosure at all steps of the process. The International Litigation Finance Association is a newly formed group of prominent litigation funders dedicated to ensuring that the industry is well-understood and that its goals are clear.

The main purpose of litigation funding as a concept is to increase access to justice by removing financial barriers for plaintiffs. COVID has amped up this need even more—as business closures, contract breaches, and other factors leave citizens in financial peril. Law firms are also making use of the practice, using funds to cover litigation fees and costs, in order to free up capital for expansion.

As third-party funding grows in acceptance, it also has become more diverse. Portfolio funding allows law firms to monetize existing cases, diversify risk, and add more certainty to cash management plans. About 75% of legal finance practitioners have seen an increase in requests for funding. Of those who applied for funding, 61% were able to gain funding for their cases.