Our previous articles have demonstrated why the benefits of Cartiga’s consumer legal funding outweigh the true cost of funding,[i] and how those benefits are enhanced by Cartiga’s transparency and its management of funding costs for optimal results.
Just as important is the evidence that consumer legal funding increases recoveries for plaintiffs in personal injury cases. That evidence shows that claimants who use consumer funding enjoy a financial “return” in addition to the other benefits.
Insurance Industry Data Show That Funding Results in Higher Recoveries
Legal and economic experts agree that consumer legal funding enables claimants to reject “lowball” settlement offers in personal injury cases and litigate until they achieve a fair recovery.[iii] It follows logically that funding necessarily results in recoveries for claimants that are, at the very least, higher than the lowball settlements that are otherwise available. However, confirming those increases is difficult because settlement information is confidential and non-public.
Fortunately, the insurance industry has recently conducted a study admitting that “third-party litigation funding” (or “TPLF”), which includes consumer legal funding, does in fact increase claimants’ recoveries in judgments and settlements. Specifically, a report by Swiss Re in 2021 confirms directly that:
- “We find that TPLF contributes to higher awards…” Average awards in US vehicle negligence cases are increasing; and
- Legal funding “is emerging as a significant contributor” to these increases in legal claims above and beyond normal economic trends, which have “mirrored the growth in the use of litigation finance over the past decade.” [iv]
Swiss Re not only confirms that recoveries are higher in cases with legal funding. It concludes that the data shows “a high-level correlation between the average award size and duration of funded cases across the entire TPLF portfolio….” [v] Stated differently, the data confirms that funding enables claimants to hold out for higher settlements, rather than settling early for a lower amount.
Swiss Re does not just find a correlation between legal funding and higher recoveries for claimants. It concludes that funding causes higher recoveries because third-party funding allows plaintiffs to better prepare their cases and pursue them further and more effectively. [vi] In other words, legal funding empowers lawyers and their clients with greater resources to achieve fair results.
Economic Studies Show That Funding Results In Higher Settlements
Swiss Re’s conclusions are confirmed by two independent economic studies.
First, two economists at Vanderbilt University concluded that “optimal” consumer legal funding (i.e. funding terms that benefit both the funder and the claimant) induces “full settlements.” [vii] These economists not only recognize the “value creating” benefits of funding (i.e. the claimant receives money to pay medical bills and life expenses, and transfers some of the risk of loss to the funder). The economists also conclude that optimal funding “extracts the defendant’s full willingness-to-pay and induces all suits to settle…” because funding causes claimants to more often demand average levels of damages acceptable to defendants.[viii]
Another study by a PhD in law and economics at Ohio State University found that the availability of funding in Ohio medical malpractice cases increased payments to claimants by 28 to 46.7 percentage points. The data in this study showed that funding permits claimants to hold out for higher settlements because funding decreases their risk (by shifting risk to the funder) and increases their ability to hold out for higher settlements (by advancing cash to pay their living expenses).[ix]
Swiss Re’s conclusions that consumer legal funding increases claimants’ recoveries helps explain why insurance industry lobbying organizations are proposing legislation that would limit or effectively bar consumer legal funding.[x] Experts have noted that legislation forcing funding companies to exit the market will be “considered a victory for the insurance industry.” [xi]
Legal Funding Has Not Resulted In Higher Legal Costs
Swiss Re’s study nevertheless argues that, even if legal funding contributes positively to higher awards, it also has contributed negatively to “greater legal expenses,” which allegedly can reduce plaintiff’s recovery in a case. [xii] However, the data that Swiss Re relies on – drawn from a U.S. Chamber of Commerce study comparing legal expenses in 2016 and 2020 – shows plainly that legal expenses in motor vehicle and medical liability cases have not increased since 2016. Instead of legal costs, the increase that may have affected total costs and plaintiffs’ recoveries is the nearly 100% increase in insurers’ profits in motor vehicle cases (from $26b in 2016 to $58.5b in 2020).[xiii]
Swiss Re does correctly observe that consumer legal funding imposes an expense for a claimant in addition to legal fees. But that is an expense that an insurance company often creates by making a lowball settlement offer at the beginning of a case, which then requires a claimant to pursue further litigation to obtain a fair and just result. That further litigation in turn requires claimants to seek consumer legal funding in order to pay living and medical expenses. [xiv] As a result, the additional expense of funding should not be considered as a reduction in plaintiffs’ recoveries, but rather as an investment in a claim process in order to achieve a higher return from an insurer otherwise unwilling to pay fairly.
Conclusion
In addition to all the other benefits of Cartiga’s legal funding, the evidence shows that consumer legal funding delivers higher recoveries for plaintiffs in personal injury cases than would otherwise be obtained. This evidence comes from the insurance industry itself, as well as from independent studies. As a result, consumer funding is not only a lifeline for claimants to keep their lives intact. Funding can be a good investment that increases financial “returns” for claimants in personal injury cases, and thereby maximizes their legal outcomes.
This article is for marketing purposes only, does not constitute legal advice, and should not be relied upon as legal advice.
[i] Ronen Avraham and Anthony Sebok, An Empirical Investigation of Third Party Consumer Litigant Funding, 104 Cornell L. Rev. 1133, 1141-42 (2019).
[iii] Heuristics, Biases, and Consumer Litigation Funding at the Bargaining Table, Vanderbilt Law Review, Vol. 68:1:261, 266 (2015); Ronen Avraham and Anthony Sebok, An Empirical Investigation of Third Party Consumer Litigant Funding, 104 Cornell L. Rev. 1133 (2019); GAO Report on Third-Party Litigation Funding: Market Characteristics, Data, and Trends, pp.12-14, 18-19 (December 2022); Susan Lorde Martin, Litigation Financing: Another Subprime Industry That Has A Place In The United States Market, 53 Vill. L. Rev. 83, 84-85, 102 (2008); Andrew F. Daughety and Jennifer F. Reinganum, The Effect of Third-Party Funding of Plaintiffs on Settlement, American Economic Review, Vol. 104, No. 8, pp. 5-6 (August 2014);
[iv] Swiss Re Institute, US Litigation Funding And Social Inflation; The Rising Costs of Legal Liability (December 2021) at pp. 2, 13-14; see also https://www.insurancebusinessmag.com/us/news/auto-motor/us-litigation-funding-impacting-costs-of-liability-claims-326725.aspx; see also Insurance Information Institute, What is Third-Party Litigation Funding and How Does it Affect Insurance Pricing and Affordability, p. 7.
[v] Swiss Re Institute, US Litigation Funding And Social Inflation; The Rising Costs of Legal Liability (December 2021) at pp.3, 13, 18.
[vi] Swiss Re Institute, US Litigation Funding And Social Inflation; The Rising Costs of Legal Liability (December 2021) at p.17; see also https://www.insurancebusinessmag.com/us/news/auto-motor/us-litigation-funding-impacting-costs-of-liability-claims-326725.aspx
[vii] Andrew F. Daughety and Jennifer F. Reinganum, The Effect of Third-Party Funding of Plaintiffs on Settlement, American Economic Review, Vol. 104, No. 8, pp. 1, 2, 6, 21 (August 2014).
[viii] Andrew F. Daughety and Jennifer F. Reinganum, The Effect of Third-Party Funding of Plaintiffs on Settlement, American Economic Review, Vol. 104, No. 8, pp. 1, 6, 21 (August 2014).
[ix] Jean Xiao, Consumer Litigation Funding and Medical Malpractice Litigation: Examining the Effect of Rancman v. Interim Settlement Funding Corporation, Law and Economics PhD Program, Vanderbilt University, pp. 1, 5, 8, 12-13, 25 (June 2017).
[x] See, e.g., https://www.insurancejournal.com/news/national/2022/03/03/656613.htm
[xi] Michael A. Wittman, Finding Transparency & Equity in Consumer Litigation Funding, University of Pennsylvania Carey Law School: Legal Scholarship Repository, p. 5 (2022)
[xii] Swiss Re Institute, US Litigation Funding And Social Inflation; The Rising Costs of Legal Liability (December 2021) at p.2, 16.
[xiii] U.S. Chamber of Commerce, Institute for Legal Reform, Tort Costs in America, An Empirical Analysis of Costs and Compensation of the U.S. Tort System (November 2022), p. 22; U.S. Chamber of Commerce, Institute for Legal Reform, Costs and Compensation of the U.S. Tort System (October 2018), p. 25.
[xiv] Heuristics, Biases, and Consumer Litigation Funding at the Bargaining Table, Vanderbilt Law Review, Vol. 68:1:261, 266 (2015); Ronen Avraham and Anthony Sebok, An Empirical Investigation of Third Party Consumer Litigant Funding, 104 Cornell L. Rev. 1133 (2019); Paige Marta Skiba and Jean Xiao, Consumer Litigation Funding: Just Another Form of PayDay Lending? Law and Contemporary Problems, Vol. 80:117, 119, 121-123, 126, 137-138, No. 3 (2017); Terrence Cain, Third Party Funding of Personal Injury TortClaims: Keep the Baby and Change the Bathwater, University of Arkansas at Little Rock William H. Bowen School of Law; Bowen Law Repository: Scholarship & Archives (2014), p. 13; Andrew F. Daughety and Jennifer F. Reinganum, The Effect of Third-Party Funding of Plaintiffs on Settlement, American Economic Review, Vol. 104, No. 8, pp. 5-6 (August 2014); Susan Lorde Martin, Litigation Financing: Another Subprime Industry That Has A Place In The United States Market, 53 Vill. L. Rev. 83, 84-85, 100, 101-102 (2008); GAO Report on Third-Party Litigation Funding: Market Characteristics, Data, and Trends, pp.12-14, 18-19 (December 2022).
