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💰 '''Litigation funding''' — also known as third-party litigation finance — is the practice by which an external investor provides capital to a plaintiff or law firm to finance legal proceedings in exchange for a share of any eventual recovery. Within the insurance industry, litigation funding has emerged as a significant concern because it enables claimants who might otherwise settle early or abandon marginal suits to pursue protracted, high-stakes litigation against [[Definition:Insured | insureds]] and their [[Definition:Insurance carrier | carriers]]. The practice is most impactful in [[Definition:Commercial general liability (CGL) | commercial liability]], [[Definition:Professional liability insurance | professional liability]], and [[Definition:Mass tort | mass tort]] contexts, where funded plaintiffs can afford to reject reasonable [[Definition:Settlement | settlement]] offers and push cases to trial in pursuit of outsized [[Definition:Damages | damage awards]].

🔗 Funders evaluate potential investments using criteria similar to underwriting: they assess the merits of the case, the jurisdiction's [[Definition:Litigation environment | litigation environment]], the defendant's financial depth, applicable [[Definition:Insurance policy | insurance coverage]], and the expected timeline to resolution. Once funded, a plaintiff gains access to resources for expert witnesses, extended discovery, and appellate battles that would otherwise be cost-prohibitive. From the insurer's perspective, this fundamentally alters [[Definition:Claim | claims]] dynamics — funded cases tend to last longer, produce higher defense costs, and yield larger verdicts or settlements. [[Definition:Claims adjuster | Claims professionals]] must now factor the likely presence of litigation funding into their [[Definition:Reserve | reserving]] assumptions and settlement strategies.

📊 The rapid growth of the litigation funding industry — estimated in the tens of billions of dollars globally — has intensified calls for regulatory transparency. Insurance trade groups and [[Definition:Defense counsel | defense counsel]] organizations advocate for mandatory disclosure of funding arrangements so that [[Definition:Underwriter | underwriters]], judges, and juries can assess potential conflicts of interest and the true economic incentives driving a case. Several U.S. states and international jurisdictions have begun enacting or considering disclosure rules. For insurers, litigation funding is a key contributor to [[Definition:Social inflation | social inflation]], and its effects are now explicitly modeled by [[Definition:Actuarial analysis | actuarial teams]] and factored into [[Definition:Reinsurance | reinsurance]] treaty negotiations. Understanding this trend is essential for any carrier seeking to maintain [[Definition:Loss ratio | loss ratio]] discipline in an evolving legal landscape.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Social inflation]]
* [[Definition:Nuclear verdict]]
* [[Definition:Litigation environment]]
* [[Definition:Mass tort]]
* [[Definition:Litigation cost]]
* [[Definition:Subrogation]]
{{Div col end}}

Definition:Litigation funding - Revision history

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