Litigation financing, also known as lawsuit funding, has been around for decades in one form or another, though it has been more pervasive in recent economic times. With the fallout from mortgage-backed securities comes an increase in available funds in this new and emerging financial market. In a very broad sense, litigation financing occurs when a claimant or claimant's attorney obtains a loan to be repaid out of the proceeds from any settlement or judgment. These loans are frequently "non-recourse" loans, meaning the lender cannot seek repayment unless the claimant makes a recovery.

Two Flavors of Funding

Litigation financing exists in numerous forms. However, two basic types are emerging, each with its own impact on claims management. The first are relatively low-dollar claims, often in the bodily injury context and typically under $10,000. They are frequently made directly with the injured claimant and usually without the advice of counsel. The funds from these loans are commonly used for living expenses and maintenance of lifestyle where an injury may make it otherwise difficult.  However, there are usually no specific restrictions on the use of the funds and the claimants may be more frivolous with the proceeds.