Will the defendant’s insurance be informed if I get pre-settlement legal funding?

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Will the insurance be informed of lawsuit loan agreement

It’s likely that if you are a party to a civil lawsuit, not everything may be smooth sailing in your finances. You may be injured, unable to work, and struggling to pay the bills (mortgage/rent, utilities, groceries, etc.) that are a part of everyday life. 

Thankfully, pre-settlement funding is a solution that many plaintiffs turn to when they need money to assist them in meeting those day-to-day expenses while a lawsuit is pending. It provides you with cash to be able to afford to pay your bills and tide you over until the case resolves through either a settlement or a jury verdict.

However, one of your primary concerns may be the risks you face if the defendant’s insurance company finds out you got pre-settlement funding. Read on to learn:

When am I required to inform the other side I obtained a pre-settlement loan?

Whether or not the defense will find out you received a pre-settlement loan is governed by what state you live in and the stage of your case.

Certain states have passed legislation regulating settlement funding for corporate defendants that requires that your attorney must disclose to the defense if you have a lawsuit loan agreement with a third-party funder. Unfortunately, since this regulation is for corporate defendants, it also affects personal injury claims.

 In other states, there are disclosures to the other side that are required if a party to a lawsuit has received a pre-settlement loan if the case goes to trial. However, even in these circumstances, this is not something that will have to be disclosed to the defense or its insurer if your case resolves outside of court through negotiations between your attorney and the defense counsel. 

Can the defendant’s knowledge of a pre-settlement funding agreement hurt a plaintiff?

If the defense/defendant’s insurance finds out you got a pre-settlement loan, they may attempt to take advantage of your financial situation during settlement negotiations because you are in need of money. 

The defense (and particularly its insurer) will often do everything it can to make you accept less than your case is worth, and, in certain circumstances, the courts may require your attorney to disclose the fact that you sought pre-settlement funding.  

However, the other side and its insurer may not realize that, even if you receive pre-settlement funding, it can hurt them. A pre-settlement loan can enable you to hold out for a better final resolution to the case. 

The moment you get pre-settlement funding, the financial pressure you were facing eases, and you no longer have to take the first settlement offer presented to you. With your immediate financial concerns eased because you received pre-settlement funding, you will be able to hold out for a better offer, and you will feel less compelled to accept the first offer that an insurer may make to you to settle your case.

Some attorneys will use the disclosure of lawsuit funding agreements as a negotiating tactic. The law firm representing a plaintiff will say their client has an x amount of funding on this case, meaning the case is worth an x amount of money.  

For these reasons, even if you are required to disclose to the defense and its insurer that you obtained funding from your pending settlement, this disclosure may not be a bad thing.

How do insurers look at cases? 

The defense, in the vast majority of cases, is paid for by the insurance. This includes payment of both the legal fees and costs associated with the defense of the claim, as well as the ultimate settlement payment to the person who has been injured or harmed and who has brought the case. 

An insurer will typically try to settle a case for as low an amount as possible. This tactic means that if the insurer knows it can squeeze you because you are experiencing financial difficulties, therefore it will do so. 

On the flip side, once they realize you no longer face the same financial difficulties since you obtained funding or that a funding agreement is worth 10% of what a funder thinks your case is worth, the insurer may try to cut their losses by negotiating a fair resolution. That way, the insurer can stop paying the legal fees associated with defending the case and save money.  

The takeaway

Pre-settlement funding can free you to pursue what your case is actually worth versus a low-ball settlement offer. Pre-settlement funding can be a positive development for your case since it gives you financial assistance after your accident so that you can hold out for better compensation. 

If the defense and its insurer are trying to squeeze you so that you accept less than your case is worth, then this strategy will actually backfire if you do obtain a settlement loan. Once your immediate financial concerns have eased, you are free to concentrate on getting maximum value for your case, even if it may take longer to achieve the award.

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.

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