The American Bar Association (ABA) decision-making body recently endorsed a number of best practices for litigation funding agreements.
Litigation financing is an increasingly popular technique in which investors fund lawsuits against companies, often insurers, in return for their participation in the settlement. It contributes to “social inflation” – the increase in legal fees that affects the settlement of insurers’ claims, claim ratios and, ultimately, the amount of coverage by policyholders.
The resolution, passed by the ABA House of Representatives 366 to 10, lists issues lawyers should consider before entering into deals with outside donors. He avoids taking a position on the use of these funds, but recommends that lawyers put all agreements in writing and advise them to ensure the client remains in control.
“The dispute must be directed and controlled by the party and its lawyer,” the report said. << Restrictions on the participation of an external funder or on direct or indirect control or contributions to (or receipt of notification), whether in the daily or more general handling of disputes, and in all key issues (such as strategy and agreement) should be included in the funding agreement to be addressed. ”
He also warns lawyers not to advise funders on this, warning that this could raise concerns about waiving legal and client rights and expose lawyers to allegations that they have l obligation to update this guide. during the dispute.
Opponents of litigation financing have pushed for rules requiring disclosure of financing agreements during litigation. The resolution does not take a position on whether disclosure to judges or opponents should be required, but calls on lawyers to prepare for the opportunity to discuss funding arrangements.
Pravati Capital’s launch of a new $ 200 million fund this week brings litigation finance companies more than $ 1 billion in fundraising in 2020, according to Bloomberg Law.
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