Litigation Finance Glossary

Advance Rate

The advance rate in litigation finance refers to the ratio of funded capital to the estimated value of the claim or the expected recovery — analogous to loan-to-value in real estate lending. A funder advancing $3 million against a claim with a $15 million expected recovery is deploying at a 20% advance rate. Lower advance rates provide greater coverage against adverse outcomes, partial recoveries, and cost overruns, and are therefore associated with lower pricing to the claimant. In portfolio facilities, advance rate is calculated at the aggregate portfolio level rather than on individual claims, allowing cross-collateralization to support higher advance rates on individual positions than would be available on a single-case basis.

Adverse Costs

Adverse costs (also called cost shifting or opposing party costs) refers to the obligation of an unsuccessful litigant to pay all or part of the prevailing party's legal fees and expenses. The exposure to adverse costs is one of the primary drivers of demand for litigation finance and ATE insurance in loser-pays jurisdictions, as an unfunded claimant who loses faces not only the loss of their claim but also a potentially crippling costs order. In funding structures, adverse costs exposure is separately budgeted and must be covered either by ATE insurance, by the funder's capital commitment, or by a combination of both. The risk of a large adverse costs award — particularly in complex commercial litigation with well-resourced defendants — is a material underwriting consideration that can affect both the funding decision and the deal pricing.

ALFA (American Legal Finance Association)

The American Legal Finance Association is the U.S. trade association primarily representing consumer litigation funding companies — those providing advances to individual plaintiffs in personal injury, workers' compensation, and similar retail claims. ALFA's membership and focus differ materially from ILFA: where ILFA covers sophisticated commercial and arbitration finance, ALFA addresses the consumer segment that faces greater regulatory scrutiny under state lending and usury laws. ALFA has been active in lobbying against legislation that would classify consumer litigation advances as loans subject to interest rate caps. Understanding the distinction between ALFA and ILFA matters for institutional participants because the regulatory and reputational risks associated with each segment differ substantially.

ATE Insurance (After the Event)

After the Event insurance is a policy purchased after a legal dispute has arisen that covers the insured's adverse costs exposure — specifically, the risk of being ordered to pay the opposing party's legal costs if the claim fails. ATE is particularly important in English-law jurisdictions operating under the loser pays rule, where an unsuccessful claimant can face a substantial adverse costs order. In litigation finance transactions, ATE is frequently used alongside funding to provide a complete capital solution: the funder covers the claimant's own legal costs, and the ATE policy covers any adverse costs award. ATE premium is typically deferred and contingent on success, adding to the funded party's liability waterfall but requiring no upfront payment.

Barratry

Barratry refers to the practice of stirring up or inciting litigation, particularly the filing of groundless suits for profit. In the litigation finance context, barratry concerns arise when funders are accused of identifying and soliciting plaintiffs to pursue claims the plaintiffs would not otherwise have brought. While sophisticated commercial funders do not engage in claim origination of this type, the barratry doctrine informs regulatory discussions about funder conduct, particularly in mass tort and consumer litigation finance. Some critics of the industry invoke barratry-adjacent arguments when opposing mandatory disclosure of funding arrangements in class actions.

BTE Insurance (Before the Event)

Before the Event insurance is legal expenses coverage purchased before any dispute arises, typically as part of a personal or commercial insurance policy — for example, as an add-on to a household or business liability policy. BTE is common in the UK and Germany, where it provides coverage for legal costs of pursuing or defending claims up to a policy limit. From a litigation finance perspective, BTE coverage affects funding decisions because a claimant with BTE may not need third-party funding for legal costs but may still seek funding to manage adverse costs risk or to access a larger capital commitment than the BTE limit provides. Funders must assess whether BTE coverage is in place and how it ranks in the recovery waterfall before structuring a deal.

Capital Provider

A capital provider in litigation finance is the entity — fund, family office, insurance company, or institutional investor — that deploys capital into litigation assets, either directly or through a fund manager. The term encompasses both direct funders (who underwrite and hold individual investments) and passive LPs (who commit capital to a fund that makes individual investment decisions). Capital providers range from dedicated litigation finance funds managing billions in AUM (Burford, Omni Bridgeway, Fortress) to single-family offices making opportunistic investments in large commercial arbitrations. The capital provider's return requirements, time horizon, and risk tolerance shape the pricing and structure of funding arrangements, which is why understanding the economic incentives of the specific capital provider behind a transaction matters to funded parties and their counsel.

Champerty

Champerty is a common law doctrine that historically prohibited a third party from maintaining another's lawsuit in exchange for a share of the proceeds, on the theory that it encouraged speculative litigation and corrupted the justice system. Most U.S. states have abolished or significantly limited champerty as a defense, though it remains a live issue in jurisdictions including New York (where it applies only in limited circumstances) and several international arbitration seats. Funders and counsel must assess champerty risk when structuring agreements, particularly where the funder acquires a financial interest large enough that a court might deem it to have taken control of the litigation. Properly structured funding agreements with robust non-interference clauses are the primary mechanism for mitigating champerty exposure.

Claimant-Funded Litigation

Claimant-funded litigation refers to cases where the claimant — rather than a third-party funder — is bearing the cost of pursuing the claim, either on a self-funded basis or through a contingency fee arrangement with counsel. While not a litigation finance structure per se, understanding claimant-funded dynamics matters to the industry because cases that exhaust the claimant's resources mid-litigation often become funding opportunities, and the transition from self-funded to third-party funded changes the parties' incentives and settlement dynamics. Defendants sometimes attempt to prolong litigation specifically to exhaust a claimant's resources, making access to third-party capital a tool for correcting this asymmetry and enabling meritorious claims to proceed to judgment.

Disclosure (Litigation Finance)

Disclosure in the litigation finance context refers to the obligation — or absence thereof — to reveal the existence of a funding arrangement to the court, opposing counsel, or other parties. Disclosure rules vary dramatically by jurisdiction: some U.S. federal courts and several states require disclosure of funders in class actions and MDL proceedings; arbitration rules (including ICDR, ICC, and SIAC) increasingly mandate disclosure; while many other venues impose no affirmative disclosure requirement. The scope of required disclosure is a live regulatory debate, with defendants and defense-side advocacy groups pushing for broader disclosure on the theory that funding arrangements affect settlement behavior and may create conflicts of interest, and funders and claimant advocates arguing that disclosure imposes competitive harm and invades attorney-client privilege.

Funded Party

The funded party is the claimant, plaintiff, or petitioner whose legal claim is being financed — the entity receiving capital under the funding agreement and to whom the capital is provided on a non-recourse basis. In some structures, the funded party is a law firm (receiving portfolio financing) or a special purpose vehicle holding an assigned claim rather than the original claimant directly. The funded party's obligations under the agreement typically include cooperating with the funder's monitoring rights, maintaining the litigation diligently, disclosing material developments in the case, and complying with the settlement authority and return waterfall provisions. The funded party's creditworthiness is generally irrelevant in non-recourse transactions — underwriting focuses on the claim rather than the claimant.

Funding Agreement

A funding agreement is the contractual instrument between a litigation funder and the funded party — typically the claimant and/or their counsel — that governs the terms of the capital deployment, the funder's return, the parties' respective rights and obligations, and the conditions under which the agreement terminates. Key provisions include the commitment amount, draw schedule, return waterfall, settlement authority mechanics, non-interference covenants, and confidentiality terms. Funding agreements are typically governed by New York or English law in international commercial transactions. The enforceability of specific provisions — particularly return multiples following early settlement and the funder's rights on termination — is an active area of litigation in several jurisdictions.

ILFA (International Legal Finance Association)

The International Legal Finance Association is the primary global trade body for the commercial litigation and arbitration finance industry, representing major funders including Burford Capital, Omni Bridgeway, Fortress, and others. ILFA publishes voluntary principles and best practices covering disclosure, non-interference, and client protection, which serve as a self-regulatory framework in the absence of comprehensive statutory oversight in most jurisdictions. Membership in ILFA signals a funder's commitment to institutional-grade conduct standards, which matters to law firms and corporate clients evaluating counterparty risk. ILFA also engages in legislative and regulatory advocacy, particularly around proposed mandatory disclosure regimes in U.S. federal courts.

IRR (Internal Rate of Return)

IRR is the annualized discount rate at which the net present value of all cash flows from a litigation investment equals zero — effectively, the time-adjusted return on deployed capital. IRR is sensitive to case duration: a 3.0x MOIC returned in 18 months generates an IRR above 100%, while the same MOIC over five years produces an IRR closer to 25%. For litigation finance fund managers, IRR is the primary performance metric used in LP reporting and fund benchmarking, as it accounts for the fact that litigation timelines — and therefore capital cycle times — vary enormously across the portfolio. Funders targeting institutional LP capital typically underwrite to IRR thresholds (often 20-30%+ net) and model downside scenarios that account for case losses, adverse costs awards, and settlement delays.

Litigation Finance

Litigation finance is the practice by which a third party provides capital to a claimant, law firm, or portfolio of claims in exchange for a share of the proceeds if the claim succeeds. The funder bears the cost of pursuing the case — including legal fees, expert costs, and disbursements — and receives nothing if the claim fails. This asset class has grown significantly as institutional investors recognize uncorrelated returns tied to legal outcomes rather than market cycles. Underwriting decisions turn on merits assessment, jurisdiction risk, defendant creditworthiness, and expected case duration.

Loser Pays

The loser pays rule — also known as the English rule or cost shifting — requires the losing party in litigation to pay the prevailing party's reasonable legal costs, in contrast to the American rule under which each party generally bears its own fees regardless of outcome. Loser pays jurisdictions (including England and Wales, Australia, Canada, and most of Europe) create substantially different risk profiles for claimants and funders than American rule jurisdictions: the downside on a failed claim includes not only the loss of the claim itself but potential six- and seven-figure adverse costs awards. This dynamic drives higher demand for ATE insurance and adverse costs coverage in English-rule markets and is a key structural reason why the litigation finance industry developed earlier and more robustly in the UK and Australia than in the U.S.

Maintenance

Maintenance is the related but distinct common law tort of intermeddling in litigation by providing support — financial or otherwise — to a party to a lawsuit with whom the supporter has no legitimate interest. Where champerty requires a bargain for a share of proceeds, maintenance covers broader intermeddling even without a financial stake in the outcome. Like champerty, maintenance has been largely abolished in most U.S. jurisdictions as courts have recognized that access to capital for litigation serves legitimate public interests. Funders operating in jurisdictions that retain maintenance doctrines — including some offshore arbitration venues — must ensure their involvement is limited to passive financial support with no direction of litigation strategy.

Meritless Claim Risk

Meritless claim risk is the underwriting risk that a funded claim fails not because of an adverse factual or market development, but because the claim lacked legal or evidentiary merit that could have been identified at inception with better due diligence. Sophisticated funders invest heavily in pre-commitment merit review — engaging independent legal counsel, reviewing core documents and damages models, and stress-testing the legal theory — precisely to minimize meritless claim risk. This risk is distinct from the general case risk that a meritorious claim simply loses at trial or arbitration; it reflects a failure in the underwriting process rather than an adverse outcome on a well-underwritten investment. Portfolio managers track meritless claim losses separately from general case losses as a diagnostic for underwriting quality, because a pattern of meritless failures signals systemic due diligence deficiencies.

MOIC (Multiple on Invested Capital)

MOIC measures the total return on a litigation investment expressed as a ratio of total proceeds received to total capital invested, without adjustment for the time value of money. A 3.0x MOIC on a $5 million investment means the funder recovered $15 million in aggregate from that position. MOIC is a useful gross return metric for comparing outcomes across cases of different sizes, but it is incomplete for fund-level performance assessment because a 3.0x returned in 18 months is far superior to the same multiple returned in six years. Funders typically report both MOIC and IRR to limited partners, with MOIC useful for assessing the magnitude of a return and IRR capturing the time-adjusted performance.

NAV Lending

NAV lending (Net Asset Value lending) in the litigation finance context refers to credit facilities extended to fund managers or investors secured against the estimated net asset value of a litigation portfolio rather than against specific individual cases. The lender advances a percentage of the portfolio's marked NAV, providing the fund manager with liquidity without requiring case-level disposition. NAV lending is more common in private equity than in litigation finance, but it is an emerging structure as the asset class matures and portfolio marks become more standardized. The key challenge is that litigation portfolio NAV is inherently difficult to mark — case values are uncertain and illiquid — making lenders cautious about advance rates and requiring robust valuation methodologies.

Non-Interference Clause

A non-interference clause in a funding agreement contractually prohibits the funder from directing, controlling, or otherwise interfering with the funded party's litigation strategy, settlement decisions, or choice of counsel. Non-interference provisions are standard in institutional funding agreements and serve two functions: they protect the claimant's autonomy over their own case, and they insulate the funder from champerty and unauthorized practice of law claims that could arise if the funder is deemed to be controlling the litigation. Well-drafted non-interference clauses typically carve out the funder's right to receive information, consent to certain material decisions (such as settlement below a floor amount), and terminate the agreement if specified conditions are met — stopping short of affirmative direction of strategy.

Non-Recourse Funding

Non-recourse funding means the claimant has no obligation to repay the funder if the case is lost or produces no recovery — the funder's capital is at risk entirely on the outcome. This structure is the defining characteristic of most litigation finance arrangements and is what distinguishes it from a conventional loan. From a regulatory standpoint, non-recourse treatment affects whether the arrangement is classified as a loan subject to lending laws, usury caps, or consumer finance regulations. For funders, the non-recourse nature demands rigorous pre-investment merit review because there is no collateral backstop.

Portfolio Diversification

Portfolio diversification in litigation finance refers to spreading funded capital across multiple uncorrelated claims to reduce the binary loss risk inherent in any single case. A well-diversified litigation finance portfolio — spanning multiple practice areas, jurisdictions, defendants, and case types — can produce relatively predictable aggregate returns even when individual case outcomes are uncertain. Correlation is a key underwriting consideration: cases against the same defendant, in the same industry, or turning on the same legal theory carry correlated risk that limits diversification benefit. Institutional funders typically set concentration limits by defendant, counsel, jurisdiction, and case type as a portfolio management discipline.

Portfolio Financing

Portfolio financing involves a funder committing capital across a defined group of cases — often a law firm's entire docket or a subset of pending matters — with the return calculated on the aggregate portfolio performance rather than case-by-case. Portfolio arrangements benefit the funded party by allowing winners to cross-subsidize losers, often resulting in better pricing and higher advance rates than single-case deals. For funders, portfolio structures provide diversification that reduces binary risk and can support deployment of larger capital amounts. Portfolio financing has become the dominant structure for law firm financing, enabling firms to monetize contingency fee inventories, smooth cash flow across matters, and take on cases they could not otherwise afford to run.

Privilege (Attorney-Client)

Attorney-client privilege protects confidential communications between a lawyer and their client made for the purpose of obtaining or providing legal advice. In the litigation finance context, privilege issues arise primarily around whether sharing case assessments, legal memoranda, or attorney communications with a funder waives the privilege as to those materials. Most U.S. courts have held that sharing privileged materials with a litigation funder does not constitute waiver where the communication is made in confidence for the purpose of obtaining funding — treating the funder as a party with a common legal interest. However, this analysis is fact-specific and jurisdiction-dependent, making it critical for counsel to structure funder due diligence carefully to preserve privilege over shared materials.

Recourse Funding

Recourse funding in the litigation finance context refers to arrangements where the funded party retains some repayment obligation regardless of case outcome — for example, a line of credit secured against a firm's receivables rather than a pure share of proceeds. Recourse structures are more common in law firm financing and portfolio facilities than in single-case consumer or commercial funding. Because the funder holds a claim against the borrower independent of litigation success, these arrangements may be treated as conventional lending and subject to different regulatory treatment. The pricing on recourse facilities is typically lower than non-recourse funding, reflecting the reduced risk to the capital provider.

Return Multiple

A return multiple in litigation finance specifies the funder's recovery as a defined multiple of the capital deployed — for example, 2.5x or 3x the funded amount — rather than a percentage of the total judgment or settlement. Return multiples are common in shorter-duration cases or where the funder wants predictable return economics regardless of recovery size. The choice between a multiple structure and a percentage-of-recovery structure significantly affects alignment between funder and claimant: a multiple caps the funder's upside on very large recoveries while protecting claimant economics, whereas a percentage-of-recovery structure scales with outcome size. Blended structures using a floor (multiple) and a cap or transition to percentage above a threshold recovery amount are increasingly common in sophisticated deals.

Settlement Authority

Settlement authority refers to who holds the power to accept or reject a settlement offer in a funded case — a critical governance issue because the claimant's and funder's economic interests may diverge at specific settlement amounts. In properly structured funding agreements, the claimant retains ultimate settlement authority consistent with the attorney's ethical obligations, but the funder may negotiate consent rights or floor protections that prevent the claimant from accepting a settlement that would not return the funder's minimum required amount. Courts and ethics authorities in multiple jurisdictions have scrutinized arrangements where funder consent rights are broad enough to effectively give the funder veto power over settlement, which can create conflicts between funder economics and the claimant's best interests. The design of settlement authority provisions is one of the most negotiated aspects of a funding agreement.

Single-Case Financing

Single-case financing is the deployment of capital to fund one discrete claim or arbitration, with the funder's return tied solely to the outcome of that case. Single-case investments carry the highest binary risk profile — the funder wins or loses its entire deployment on one outcome — which is why they require the most intensive underwriting and typically command higher return multiples than portfolio arrangements. Despite the concentration risk, single-case financing remains common for very large commercial arbitrations and bet-the-company litigation where the expected value is large enough to justify the risk on a standalone basis. Law firms and claimants often prefer single-case structures for early-stage funding before a portfolio is large enough to attract a portfolio facility.

Third-Party Litigation Funding (TPLF)

Third-party litigation funding refers specifically to capital provided by a party with no prior connection to the underlying dispute — distinguishing it from a claimant self-funding or a law firm fronting costs. TPLF introduces an external economic actor whose interests may differ from those of the claimant and counsel, which is why courts and regulators increasingly scrutinize disclosure obligations. In commercial TPLF, the funder typically receives a return multiple or percentage of recovery, structured so that the arrangement is non-recourse to the claimant. The presence of a TPLF arrangement can affect settlement dynamics, discovery obligations, and in some jurisdictions, standing challenges.

Warehouse Facility

A warehouse facility in litigation finance is a credit line provided to a funder or investment manager to accumulate a portfolio of cases before refinancing into a longer-term fund structure or securitization. The warehouse lender — typically a bank or institutional credit provider — advances capital against committed case investments, with the expectation that the facility will be repaid when the fund closes and LP capital is drawn, or when the portfolio is monetized. Warehouse facilities allow fund managers to start deploying capital before a formal fund close, reducing the time between fund launch and first investment. The facility is typically recourse to the fund manager and may include eligibility criteria, concentration limits, and advance rate caps tied to portfolio quality metrics.

Work Product Doctrine

The work product doctrine protects materials prepared by or for an attorney in anticipation of litigation from disclosure to adverse parties. Like attorney-client privilege, work product protection is at risk if materials are shared with third parties who do not share a common interest with the attorney's client. In litigation finance, the question of whether sharing an attorney's case assessment or litigation strategy memorandum with a funder waives work product protection is frequently litigated. The common interest doctrine and the theory that funders share a legal interest in the claim's success are the primary arguments for non-waiver, but courts are not uniform in their treatment, and funders and counsel should use explicit confidentiality and common interest agreements when sharing work product during due diligence.