The new norm for either PI attorneys, or Class Action counsel is that they must be ready for years of litigation while working on contingency. It is not uncommon for defendants such as J&J, or Allstate to choose to litigate rather than settle cases so as to wear down plaintiff’s counsel. Litigation finance can be part of the solution to help you maximize every settlement, or verdict.
The most recent figures show the US tort system incurred annual costs and compensation equivalent to roughly 2.1% of GDP, or $529 billion in 2022 (Source: U.S. Chamber of Commerce Institute for Legal Reform).
Tort costs have been growing faster than inflation and annual GDP growth, at an average annual rate of 7.1% between 2016 and 2022. If this growth continues, US tort costs are projected to near $1 trillion by 2030. With the financial markets reeling, and with recent natural catastrophes, it should not surprise anyone if insurance carriers suddenly slow down settlements, further delaying litigations to recoup their reserves.
The challenge of the US tort system is often linked to the cost, inefficiency of the court system and reluctance of some insurance carriers to settle cases, even if they should, due to cash constraints. These factors all contribute to making the task of running a law firm challenging at best. Furthermore, as receivables are unrealized gains and not recognized by banks, law firms need to be prepared for lumpy cash flows as they fight off operational stress while waiting for settlements to happen and their distributions to occur. This is where litigation funding can prove strategic.
The uncertainty surrounding when a settlement might occur, how long it will take to disburse often proves to be an ongoing challenge for law firms.
Post-settlement litigation finance provides liquidity to law firms when the only remaining challenge is waiting to be paid.
Despite the rapid growth of litigation finance, many lawyers are unaware of how to use legal funding to manage legal cost and risk. Post-settlement litigation finance allows law firms to solve for the need to time cash flows associated with pending contingent work, manage partner compensation for contingent work, and advance fees for outstanding receivables.
As you consider litigation funding, here are some questions you should be prepared to answer.
Lastly, will accelerating some of your legal fee cash flows enable your firm to maximize your fee income in other cases! I’m saying this from experience, if your well funded, take your cases to verdict and hit your adversary over the head a couple of times, they will be less likely to slow play settlements later on.
As the industry has experienced rapid growth, the onerous falls on the law firm to find the right partner. Litigation funding offers law firms the advantage of improving how legal costs are managed to avoid operational risk, and while a cost of doing business, it is important to be prudent. To do so, be prepared, and consider asking the following questions.
Roni Dersovitz, Esq. is the founder and CEO of RD Legal Funding, a pioneer in providing innovative liquidity solutions for contingency law firms. To learn more about strategic options for your practice, visit www.legalfunding.com or contact us at info@legalfunding.com or (800) 565-5177.
