How to Mitigate the Risks in Consumer Legal Funding

3 minute read

Consumer legal funding provides money to individuals who are pursuing personal injury claims. Legal funding empowers consumers by giving them the money they need to pay their medical bills and living expenses while waiting for a recovery on their legal claims. Legal funding also “levels the playing field.” Consumers can reject “lowball” settlement offers from defendants and have the financial strength to litigate until they achieve a fair resolution on their legal claims.

Legal funding is attractive because it is not a loan. Consumers keep all the money Cartiga provides them in funding, regardless of the outcome of their legal claim. If there is no recovery on the legal claim, the consumer keeps all the money. Cartiga is only paid if consumers recover on their claim, and then Cartiga is paid out of the claim proceeds.

Along with these benefits, claimants, and attorneys must understand the risks of legal funding. At Cartiga, we recognize and manage these risks to help attorneys and their clients obtain the financial outcomes they expect. The five primary consumer funding risks are:

Duration Risk

The first risk is duration risk. It is the risk that if a claim takes longer than it should to resolve, the amount that Cartiga is paid out of that recovery will increase more than what was expected when the funding was provided. When Cartiga’s amount is higher than expected, the amount that the claimant receives is reduced more than anticipated because both Cartiga and the claimant share in the recovery together. We help attorneys, and their clients manage this risk by using our data to identify the standard length of time to resolve a particular type of claim and the appropriate amount of legal funding based on that average duration. We then notify the attorney regularly about the expected duration so that, at the end of the case, Cartiga and the claimant will both be paid shares of any recovery that they expected.

Inception Risk

Another risk is inception risk. That is the risk that claimants take more legal funding than they should early in the case, and the amount paid to Cartiga will grow more than expected by the end, even if it is within the average duration period. We help attorneys and their clients manage this risk by using our data to identify the right time during the case for the claimant to take legal funding. That way, the amount Cartiga receives won’t grow higher than expected when the funding was initially provided (and the consumers won’t receive less than expected) if the attorney resolves the cases within the average duration.

Overfunding Risk

The consumer funding provided should be proportionate to the value of the claim. If the funding amount is too high relative to the claim’s value, then Cartiga is paid more than expected, with the claimant receiving less than expected from any recovery at the end of the case. This is called overfunding risk. It refers to the claimant taking too much legal funding while a claim is pending, which causes the amount payable to Cartiga to grow higher than it should by the time the case resolves. Cartiga helps identify the right amount of funding in a case assuming an average duration.

Settlement Risk

Settlement risk occurs if the recovery achieved at the end of the case is less than the expected case value. As mentioned above, the funding amount in a case is calculated on the overall value of the claim that the lawyer intends to achieve for the client. Suppose the ultimate resolution of the claim (usually in a settlement with the defendant) is lower than the expected settlement. In that case, Cartiga and the claimant will have to share in less money than initially anticipated.

Buyout Risk

Buyout risk is the risk that the claimant will receive less from the resolution than expected because more than one funding company provides funding on a claim. Some claimants will receive legal funding from Company A and then switch to Company B for more funding. This switch, known as a “buyout,” results in Company B paying off Company A for the initial funding so that only Company B gets paid when the claim resolves. That buyout, in turn, results in Company B being paid more out of the settlement amount than if the buyout had not occurred. Cartiga helps attorneys, and their clients manage this risk by committing to stay with claimants after providing funding and, in most cases, not engaging in buyouts.


Understanding and managing the risks associated with consumer legal funding is essential for attorneys and their clients. Cartiga’s strategic approach to legal funding and its advanced data analytics enhance this understanding and control these risks. This promotes better funding outcomes and happier consumers.

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