The American civil justice system operates on a fundamental economic imbalance. On one side are massive insurance conglomerates and multinational corporations with virtually unlimited legal budgets. On the other side are individual plaintiffs—often dealing with severe physical injuries, mounting medical debt, and lost wages. For decades, defendants used this financial disparity as a weapon. By dragging out the litigation process with endless motions and delays, they could financially starve a plaintiff into accepting a low-ball settlement. However, a rapidly growing sector in the financial world known as Third-Party Litigation Funding (TPLF) is fundamentally shifting the economics of the courtroom.
What is Litigation Funding?
Litigation finance is a practice where an outside investor—ranging from specialized hedge funds to private equity firms—provides capital to a plaintiff or a law firm to cover the costs of a lawsuit. In exchange, the funder receives a predetermined percentage of the final settlement or jury award. Crucially, these are “non-recourse” investments. If the plaintiff loses the case, they owe the funder nothing. The investor assumes the entire financial risk. For a society where the cost of accessing the courts has skyrocketed, this financial tool allows victims to hire top-tier expert witnesses, conduct exhaustive forensic discovery, and, most importantly, wait out the defense.
The Impact on Settlements and “Social Inflation”
The infusion of Wall Street capital into the legal system has dramatically altered settlement negotiations. Because plaintiffs no longer face the immediate threat of bankruptcy, they are empowered to reject inadequate early settlement offers. They can afford to take cases to trial.
Insurance companies argue that this dynamic is a primary driver of “social inflation”—the trend of massive, multi-million dollar “nuclear verdicts” that drive up the cost of insurance premiums for everyone. They argue that because investors need to ensure a high return on their capital, litigation funders pressure plaintiffs to hold out for exorbitant sums, effectively commoditizing the justice system.
Access to Justice vs. Profit Motive
Proponents of the practice view it very differently. They argue that litigation funding does not create frivolous lawsuits; sophisticated investors do not risk millions of dollars on weak claims. Instead, the funding simply allows meritorious claims to survive the grueling litigation process. For a family devastated by a catastrophic injury, legal finance levels the playing field against corporate giants. Experienced litigation advocates, such as the team at Shindler & Shindler, understand that protecting a client’s rights often requires robust financial backing to match the resources of the defense. TPLF ensures that cases are decided on the legal merits of the claim, rather than the financial endurance of the victim.
Conclusion
As litigation finance becomes a mainstream asset class, regulators are debating how to mandate transparency without crippling the industry. While the presence of investors undeniably complicates the purity of the legal process, it currently serves as one of the few financial equalizers available to the average citizen fighting a corporate giant.