In Maryland, and, I suspect, elsewhere, litigation loan companies are coming under increased scrutiny. Companies such as American Legal Funding, LLC lend money to claimants pursuing civil or worker’s compensation claims, ostensibly to assist in paying medical bills and other expenses while the claim proceeds. The funding company gets paid at the end of the case from the award, if there is one. (Like contingent attorney’s fees, the companies don’t get paid if the claimant loses, so they “evaluate” cases much as a bank evaluates you for a mortgage.)
And American Legal Funding, LLC was recently found to be in violation of the law by the Maryland Department of Financial Regulation. At least one local firm is hoping to represent the individuals who took out loans with the company. If there is litigation on this issue going forward, it will raise some interesting legal questions: if the claimants were represented by lawyers when they took out these loans, have those lawyers committed malpractice or will they be subject to discipline? Also, healthcare providers often treat plaintiffs subject to an “authorization and assignment,” meaning that the plaintiffs assign to them that portion of any recovery which is necessary to satisfy outstanding medical bills. If these plaintiffs get awards for violation of the Consumer Protection Act (which is what I assume provides the basis for recovery), will their healthcare providers demand their shares?
Will clever defense attorneys find a way to make use of this during settlement negotiations? During settlement negotiations the parties frequently discuss the outstanding liens and subrogation interests. The existence of a possible second source for recovery matters during these discussions.
And finally, if an attorney advises a client to obtain litigation funding, is that act a “professional service” that will trigger coverage under an errors and omissions policy? That’s a question that will go unanswered until a big enough claim is filed. And until it is, claimant’s attorneys should think carefully before recommending litigation loans.