How Does Defense-sided funding work?
In essence, defense-sided litigation funding can be qualified as post-event risk management. The goal of defense-sided funding is to transfer the risks and costs of litigation away from the defendant to the litigation company, which is more prepared to carry the financial burden. Not only can litigation companies absorb the cost, but they also can provide access to resources and expertise that an entity may not be able to access on its own. One of the key benefits of this to a defendant is they are not responsible for paying the litigation expenses until the lawsuit has been finalized allowing them to continue funding their regular operation without the significant financial burden. For the funding company, there is an obvious financial incentive, but they are structured much more creatively than plaintiff-sided funding. In these instances, agreements usually have heavier incentivization built in for dismissals. (Agee 2019)
A hypothetical example: A plaintiff is asking for 30 million dollars to settle a case. The mutual definition of success between the defendant and the litigation company is settling for anything below $18 million. If that occurs, the litigation company gets the litigation fees plus 30% of the difference between the asking and final settlement. With help from funding and resources from a litigation company, the defendant settled for $15 million, which would trigger their agreement to pay $4.5 million plus the litigation costs.
The Future of Public Entities and Defense-Sided Litigation Funding
Up to this point, public entities and insurance companies have been on the losing end of litigation funding and crippling nuclear verdicts. As the defense-sided litigation funding market grows and more options become available, it may be beneficial for public entities to partner with litigation funding companies. Some of the potential benefits of defense-sided litigation funding include:
- Improve the entity's settlement position and mitigate the cost of settlement
- Gain access to national expertise and resources.
- Protecting capital and day-to-day business operations during litigation
- Possibly deter frivolous lawsuits (Levine 2022)
The volume of lawsuits against public entities shows no evidence of slowing down, and the risk of nuclear verdicts is exponentially intensifying. As a result, public entities should be prepared to exhaust every viable option to protect its people, property, and the public. If defense-sided litigation funding can provide a vehicle to accomplish those objectives in the future, the leadership of these entities will want to recognize the benefits of partnering with these litigation companies.