Litigation Funding and Liability Insurance: Mirror Images

Both liability insurance and litigation funding are designed to deal with the consequences of litigation by shifting the cost and risk to someone else.  Litigation funding seeks to maximize recovery to the plaintiff, and liability insurance tries to minimize payment by the defendant.   

Liability insurance was first introduced in the late 18th century, and despite initial judicial discomfort, is now widely accepted.  Litigation funding followed more than a century later, and given its relative novelty, insurance arrangements provide a useful prism through which to understand litigation funding.  The chart below provides a general overview of the similarities and differences between litigation funding and liability insurance. 

Liability Insurance

Litigation Funding

Tripartite relationship: Client, counsel and carrier

Tripartite relationship: Client, counsel and funder

Protect defendants from loss

Assist plaintiff in recovering loss

Pay fees and costs

Invest fees and costs

Mange day-to-day litigation decisions

No management of day-to-day decisions

Control over settlement

(within policy limits)

Input on settlement

Impose guidelines on counsel

No right to audit or impose guidelines on counsel


Case law on the appropriate dynamic between the three parties in the insurer-insured-counsel relationship is helpful as Bentham IMF navigates its course in Canada.  As clients increasingly turn to litigation funding, we look forward to receiving additional judicial guidance on the tripartite relationship and the valuable role it can play.