A Wall Street Journal article today reports on the pre settlement funding industry.  Much of the article revolves around the “costs” of lawsuit funding and how it is unfair to consumers.  These arguments have been made since the first lawsuit cash advance businesses emerged over 15 years ago.  Since that time, lawsuit funding operators have helped hundreds of thousands of people with immediate liquidity needs.  The industry thrives because it serves a legitimate need in the marketplace.

We regularly post about opponents’ fairness arguments.  And history has no shortage of people, supposedly without an agenda, loudly demanding fairness in an unfair world.  Ultimately however, fairness is a subjective concept.  What makes sense for one person, may not make sense for another.  This is simply the way the world works.

The purpose of this post is respond to these arguments made by people supposedly saving consumers from themselves.  As long as the attacks keep getting published, these posts will continue. Read more »

Personal injury lawsuits, such as motor vehicle accidents, are normally governed by state negligence laws.  Whether protection is recognized by past case law or by statute, states protect their citizens against damages caused by the negligence of others.  This protection is given in varying degrees from jurisdiction to jurisdiction. Read more »

Lawsuit funding transactions are typically structured as an assignment of the future proceeds of a successful lawsuit, if any.  Over the years, transactions which involve third parties’ entitlement to the lawsuits of others have been treated in various ways in a wide range of jurisdictions.  This  post will briefly discuss the doctrine of Champerty and its relationship to the modern lawsuit funding industry.

According to Black’s Law Dictionary, the doctrine of Champerty is:

A bargain made by a stranger with one of the parties to a suit, by which such third person undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if he wins the suit, a part of the land or other subject sought to be recovered by the action. Read more »

Personal injury lawsuits are among only a few types of cases in which attorneys are retained on a contingency basis.  That is, the attorney only gets paid for his services if the lawsuit is successful and he is paid out of the proceeds.  If there are no proceeds, the attorney basically donated his time in the pursuit of justice.

One of the primary reasons why personal injury lawyers accept lawsuits on a contingency fee basis is because it allows all persons equal access to the court system for negligence lawsuits.  Attorneys’ specialized knowledge and skill comes with a cost.  And not every individual has the financial means to pursue a lawsuit all the way to trial.  Undoubtedly, if clients had to pre-pay legal fees, many potentially successful lawsuits would not be prosecuted simply because of the cost. Read more »

Last April, an article entitled, Understanding and Defending Against The Litigation Finance Industry appeared in propertycasualty360.com.  Written by an Alabama attorney, who most likely represents insurance companies in the defense against personal injury actions, he generally attacks the lawsuit funding industry with many erroneous assertions.  Unfortunately, there was a great deal of misinformation contained therein.  Therefore, it is appropriate to correct these errors.  Let me start by saying however, that the author of this article is most likely a consummate professional and is certainly entitled to his opinion.  Nonetheless, opinions set forth as fact are not the same as fact. Read more »

In our last article, we spoke in detail about the lawsuit funding business as it relates to managing investor’s money.  We discussed how money management strategies can help minimize losses for the enterprise. In this post, we will discuss an important cause of underwriting losses.  Later we will discuss how pre-settlement loan companies most effectively deal with this issue.

Losing Cases

The goal of any business is to make a profit.  The lawsuit loan business certainly shares this objective.  It is fair to say if an enterprise has remained in business for a substantial period of time, a profit is being made.  Otherwise, why would business people continue?

It follows then, once a business is viable (making money), the business seeks to maximize profit.  In the pre settlement funding industry, the most effective way of increasing profit is minimizing losses.

Since every lawsuit cash advance is offered as “non-recourse” funding, the advance does not have to be repaid if the lawsuit is unsuccessful.  Usually, every loss is a TOTAL loss for the pre settlement loan company.

Limited Information

Although there are any number of reasons why a lawsuit may lose, for lawsuit funding enterprises, the vast majority of underwriting losses can be traced to the fact that lawsuit cash advance funding relies on limited information. Read more »

These articles are intended to educate the reader on the pre-settlement loan industry.  In previous posts, we discussed the administrative tasks needed to offer lawsuit loans to plaintiffs who need cash while they wait for their case to settle.  This post will discuss money management as it relates to the lawsuit cash advance funding industry. Read more »

In a report published recently by the National Association of Mutual Insurance Companies, the lawsuit funding industry was blamed for rising insurance premiums.  As absurd as this may seem, never underestimate the lengths insurers will go to excuse premium increases.  For example, read the excerpt below,

“It stands to reason that third-party funding will increase the volume of litigation, and will especially encourage the filing of frivolous and ‘nuisance’ lawsuits,” said Robert Detlefsen, Ph.D., NAMIC’s vice president of public policy. “This will increase insurers’ litigation defense costs, which will ultimately cause premiums to rise.”

In his report, Dr. Detlefsen accomplishes little more than simply offering opinion as fact.  The original report can be viewed here. Read more »

Recently, I was asked what benefits a lawsuit funding company can offer attorneys who represent clients in need of pre settlement loans.  That is, clients who have an immediate need for cash but who have already exhausted or otherwise do not have other avenues of cash currently available to them.

Lawsuit funding companies sometimes meet resistance from law firms when their clients apply for a cash advance.  The reasons are many but usually revolve around a negative stigma attached to the litigation finance industry with regard to price AND the idea that counseling clients with regard to financial transactions is usually outside the scope of representation originally agreed upon by the attorney and client.

Below I address the top 5 things attorneys should know about the lawsuit cash advance business in an effort to address some of these concerns.

Read more »

The lawsuit loan is a financial transaction wherein a company advances money to an individual involved in a civil lawsuit but who is still waiting for the matter to be concluded.  In other words, the plaintiff gets money now and he/she assigns a portion of the case’s ultimate recovery.  The lawsuit funding business arose out of an ever increasing need for immediate cash to meet the pressing financial obligations many plaintiffs were facing.

The most common example is a plaintiff who is injured, due to the negligence of another, and whose injuries prevent him from financially supporting himself.  With nowhere else to turn for funds (many typical lawsuit funding clients have poor credit or would otherwise not qualify for a personal loan), pre settlement loan companies offered relief to these individuals.

According to an article entitled, “Regulation of ‘lawsuit funding’ industry faces uncertain future in Senate” originally published here, the Kentucky Legislature passed a bill through the State Senate in an effort to regulate the “lawsuit funding” business.

This is not the first attempt by state legislatures to consider regulating the pre settlement loan industry.  And ultimately, some sort of legislation may actually be passed.  This post will consider the costs associated with potential regulation and what possible consequences, intended or otherwise, could arise from this interference in the free market. Read more »