Litigation Funding: A Close Cousin to Liability Insurance

Change is not something that comes easily and any deviation from the beaten path will come with resistance.  This is especially true in the legal realm as theories, practices and procedures from centuries past are still used in practice today.  As with anything new, there is a slow tread towards acceptance. The practice of litigation funding is no exception. 

Some of the voices of resistance to alternative litigation financing believe this practice will increase or prolong frivolous litigation, interfere with an attorney’s and/or plaintiff’s control of the case, and raise ethical conflicts.  Similar to the opposition that litigation funding is receiving in today’s market, liability insurance was met with discomfort and skepticism upon its inception in the 19th century.  It was an alien concept to introduce a third party for the purpose of shifting costs.  In the 1900s, the idea of liability insurance raised more questions than it answered but over time, its presence in the legal industry as a method to protect a defendant from loss became a mainstay.

Similar to liability insurance, litigation funding involves a tripartite relationship that serves to shift the risk and cost of high-stakes litigation, with the difference being that third party funding helps a party recover a loss versus protecting from one.  A differing aspect to third party funding is the far limited control funders may have over the litigation whereas with liability insurance, the insurance company retains a strong role in dictating the direction of a case. 

While there are some differences between litigation funding and liability insurance, the concepts behind them are related.  The evolution of the alternative litigation financing industry arose out of the necessity for its services at a time when businesses and individuals needed some relief or assistance in bringing suit against companies with deep pockets.  As third party funding simply seeks to level the playing field and provide access to justice, the legal industry will surely welcome this new kid on the legal block.