Pre-settlement Funding: Who Bears the Risk of Repayment?March 4, 2013
Pre-settlement funding provides no-risk, non-recourse financial assistance for litigants. In short, this means the pre-settlement financing company (USClaims) will recoup its investment if and only if the client’s case concludes with a recovery. In the absence of a recovery, the financing company loses its investment: it cannot seek repayment from either the client or the client’s attorney. In other words, we bear the risk.
Typically, this is how it works: A plaintiff with a personal injury, class action, mass tort, qui tam or Federal Employers Liability Act (FELA) claim applies to a settlement financing company such as USClaims. The financing company’s representative reviews the application and if approved, sends a purchase agreement to the applicant. The purchase agreement provides for the cash purchase of an interest in the proceeds of the applicant’s case. The financing company is not paid unless and until the case reaches verdict or settlement. Upon favorable resolution, repayment will come directly from the proceeds of the case. The rate of repayment will be detailed in the purchase agreement, with the amount depending upon the date of payment. Most importantly, the purchase agreement will clearly state that if the case brings no recovery, there is no obligation to the financing company (unless the applicant has provided the company with false information, committed fraud, or otherwise breached the purchase agreement).