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ANALYSIS: Trust in Litigation Finance Comes With Experience

Nov. 5, 2020, 5:24 PM

There are stark differences in how legal professionals perceive litigation finance’s ethical reputation and whether they believe the practice enables frivolous lawsuits. Those differences, according to results from Bloomberg Law’s 2020 Litigation Finance Survey, all come down to their experience with the industry.

The practice of litigation funding, in which a third-party funder provides financing in return for a share of the case proceeds, has had a mixed reputation during its growth in recent years. In its early days, the practice was often regarded with suspicion, as lawyers worried about possible violations of client confidentiality or ethics rules against fee-splitting. The U.S. Chamber of Commerce also has warned that the practice fuels unmeritorious legal claims.

Proponents of litigation finance, on the other hand, say that it helps to level the playing field by allowing law firms and clients to share the financial risk they are taking when pursuing an expensive legal claim. Major litigation funders in the industry are clear about their commitment to ethics norms and standards and their thorough due diligence before taking a case.

Survey results show that professionals with exposure to or involvement in the litigation finance industry are more likely to have a positive view of its ethical reputation.

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Similarly, respondents who have provided, obtained, or are interested in using litigation finance were much less likely to agree that the practice enables more frivolous lawsuits.

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One reason for the gap in perception might be that those who have not used litigation financing are just not familiar with certain safeguards in the process, including the high bar to get funding and the ethics best practices that are followed when funding agreements are formed. If that’s true, as litigation funding becomes more prevalent in the U.S., this wariness may subside.

Bloomberg Law subscribers can find related content on our In Focus: Litigation Finance page.

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