Commercial Litigation Funding and Liability Insurance: Mirror Images

Joined Circles

Both liability insurance and litigation funding are designed to help the party deal with the consequences of litigation by shifting the costs and risks to someone else.   In both instances, three parties are involved: the funder, the lawyer and the client.  Insurance is on the defense side; litigation funding is on the plaintiffs’ side of the litigation. Litigation funding is seeking to maximize recovery to the plaintiff and insurance is trying to minimize payment to the plaintiff. Liability insurance is more widely accepted; people are more familiar with it as it was first introduced in the late 18th century, whereas litigation funding is a newer financial tool, being introduced almost a century later. The below chart provides a very general overview of similarities and differences between litigation funding and liability insurance.

  Insurance Companies            Litigation Funders            
Similarities   Triangle: client, counsel, carrier Triangle: client, counsel, funder 
   Protect defendant from loss  Aid plaintiff in recovery of loss
   Manage case fees and costs  Track fees and costs for plaintiff
 Differences  Exclusive control over litigation  Cannot control litigation
   Manages day-to-day litigation decisions, absent conflict  No management of day-to-day decisions
   Impose guidelines on lawyers  No right to audit or impose guidelines