Should You Inform the Defendant’s Insurance about Pre-Settlement Legal Funding?

Reading Time: 3 minutes
Will the insurance be informed of lawsuit loan agreement

If you find yourself involved in a civil lawsuit, financial difficulties may arise due to injuries, inability to work, and the burden of everyday expenses. In such situations, pre-settlement funding offers a solution for plaintiffs who need money to meet their day-to-day needs until the resolution of their case. However, a common concern among plaintiffs is whether they should inform the defendant’s insurance company about their pre-settlement funding. Let’s explore this issue further.

Disclosure Requirements in Different States

The disclosure of pre-settlement funding to the other party largely depends on the state in which you reside and the stage of your case. Some states have enacted legislation that regulates settlement funding for corporate defendants, requiring plaintiffs’ attorneys to disclose any lawsuit loan agreements with third-party funders to the defense. Unfortunately, these regulations also extend to personal injury claims, affecting plaintiffs in such cases.

In other states, disclosure requirements only come into play if the case proceeds to trial. If a party involved in the lawsuit has received pre-settlement funding, it must be disclosed to the opposing party. However, if the case is resolved outside of court through negotiations between attorneys, there is generally no obligation to disclose the funding arrangement to the defense or its insurer.

Potential Effects on Plaintiffs

If the defendant’s insurance company becomes aware of your pre-settlement funding agreement, they may try to exploit your financial situation during settlement negotiations, leveraging the fact that you are in need of financial assistance after your accident. This could result in the defense pushing for a settlement amount lower than what your case is actually worth. In certain circumstances, the court may even require your attorney to disclose the fact that you sought pre-settlement funding.

However, what the opposing side and its insurer may not realize is that pre-settlement funding can actually work to their disadvantage. By receiving a pre-settlement loan, your financial pressures are alleviated, allowing you to hold out for a fairer resolution. With the immediate financial burden reduced, you are less inclined to accept the first settlement offer presented by the insurer, increasing the likelihood of obtaining a better offer.

Moreover, some attorneys use the disclosure of legal funding agreements as a negotiation tactic. They may inform the defense and its insurer about the amount of funding secured for the case, thereby indicating its perceived value. This approach can effectively strengthen your position during negotiations and help secure a more favorable outcome.

The Perspective of Insurers

In the majority of cases, the defense’s legal fees and costs are covered by insurance. Insurers aim to settle claims for the lowest possible amount, and if they are aware of your financial stress, they may attempt to exploit this situation. However, when insurers become aware that you have obtained pre-settlement funding, their perspective may change.

Recognizing that your financial situation has improved due to the funding, insurers may seek to cut their losses by negotiating a fair resolution. By doing so, they can halt the ongoing legal fees associated with defending the case and ultimately save money.

The takeaway

While the decision to inform the defendant’s insurance about pre-settlement funding depends on different factors, including state regulations and the stage of your case, disclosing such funding may not necessarily harm your position. In some cases, it can potentially enable you to negotiate from a stronger financial standpoint, increasing the chances of reaching a fair settlement.

Keep in mind that although you may have the final say on whether to inform the defendant’s insurance about pre-settlement legal funding, it’s essential to talk with your lawyer first. Your attorney can offer tailored advice based on your case’s details and the laws in your area. Your lawyer’s expertise will assist you in understanding the legal process and making informed decisions to protect your interests.

Curious to know if a Baker Street Funding settlement loan is the right option for you? See what Baker Street Funding has to offer pre-qualify for a non-recourse lawsuit loan on your case. Apply now!

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

See some of our settlement funding products

Select a legal funding service to get started. 

Attorney Requests

Lawsuit Loans

Litigation Funding

Personal Injury Loans

Settled Case Loans

Surgery Funding

Or just call us at 888.711.3599 to apply.