With recent annual returns surpassing 20%, it鈥檚 not difficult to see why investors are making third-party litigation funding (TPLF) one of the fastest-growing alternative asset classes. Litigation can be expensive, but a stake in a winnable lawsuit can be a valuable asset. So, investors, looking to diversify their financial portfolios, front the costs. However, as economists often remind us, there is no free lunch. Evidence indicates that for the end results of this capital infusion into the litigation industry, insurers and policyholders ultimately bear the brunt of the tab.
This niche market, also variously called legal funding, third-party litigation finance, or alternative litigation financing (ALF), provides billions each year in debt or equity capital to clients or law firms. Recipients can be people or corporations. They may use the money to cover personal or medical expenses (in personal litigation), attorney labor and court-related fees, explore riskier legal strategies, and pay for an expert witness or jury consultant. TPLF can come into play at almost any stage of the litigation, including after a court date is set or during the verdict collection process.
Generally, clients and their attorneys鈥搘hen working on contingency鈥揵ear litigation costs, keeping a watchful eye on expenditures and time needed to settle a claim. However, vigilance may decrease when third-party funders get involved with a lawsuit, potentially allowing litigation to draw out and expenses to soar.
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