The Rise of Litigation Funding: A Double-Edged Sword in Social Inflation

The Emergence of Litigation Funding

Litigation funding, where third parties finance lawsuits in exchange for a share of the settlement, has been increasingly cited as a contributor to social inflation. This practice, with roots in Australia and the UK, has gained traction in the United States, offering plaintiffs access to expert strategies previously reserved for large corporate defendants. However, it also raises concerns about cases being driven by investor expectations rather than plaintiffs' best interests.

Historical Context and Legal Evolution

Historically, litigation finance was widely prohibited under doctrines like 'champerty' and 'maintenance'. These prohibitions aimed to prevent financial speculation in lawsuits, rooted in a mistrust of litigation and money lending. However, societal distrust of corporations and litigation today ironically supports the erosion of these bans, leading to the rise of litigation funding. Legal scholars like Victoria Shannon Sahani highlight the 1990s as a pivotal decade for this shift, with Australia and the UK paving the way for its prevalence.

Market Size and Ethical Concerns

The exact market size of litigation funding in the U.S. remains uncertain, with estimates ranging widely. Critics argue that the lack of transparency and regulation turns courtrooms into 'casinos', with profit motives potentially overriding justice. The American Bar Association's recent approval of best practices for litigation funding reflects growing concerns. Despite its potential to level the playing field for small plaintiffs, the ethical and financial implications of litigation funding continue to spark debate.

For readers, understanding the nuances of litigation funding is crucial. Stay informed about legislative changes and best practices to navigate the evolving landscape of legal finance. Engage with legal experts and organizations advocating for transparency and ethical standards in litigation funding to ensure a balanced approach that serves justice and societal interests.