What You Should Know About Insurance in the U.S.

What You Should Know About Insurance in the U.S.

Submitted by Gain Servicing/ Cherokee Funding

In their commercials, insurance companies are portrayed as reliable, friendly and funny. But they are hardly the characters we have come to know them by.

From Dennis Haysbert for Allstate to Brad Paisley and Peyton Manning for Nationwide, to LiMu Emu and Doug for Liberty Mutual, the talking gecko for Geico, Flo for Progressive and Jake from State Farm, insurance companies playfully try to gain consumers’ trust and attention. But the amount of money being spent on paid actors and other advertising ploys should come as a red flag, not as a source of relatability or comfort.

When it comes to actually paying out on the claims they guarantee coverage for, insurance companies are data-driven hardliners ready to holdfast during settlement talks. That’s because they have two major advantages working in their favor: Time and money.

When It All Changed

In 1994, McKinsey changed the insurance industry in the U.S., forever. In a presentation made to the board of Allstate, McKinsey said that Allstate had an obligation to its shareholders to maximize returns. From that point on, the insurance industry shifted from the benefit of policy holders to the benefit of shareholders. And as a result, Allstate’s earnings went from $240 million in 1994 to $2.4 billion ten years later. The premium dollars being paid by consumers is going directly towards growth, profit and advertising for insurance companies, all of which is to the benefit of their shareholders.

Today, insurance technology is calling the shots. “Colossus,” for example, determines claim payments based on statistics, technical data, and mathematical probabilities. It is designed to know a patient/plaintiff’s financial pain points and pay out less in settlements. Not surprisingly, the insurance industry is a leader in data science, and they know a lot about their consumers.

Big Data and Big Insurance Companies – What They Know

Insurance companies know things, like:

  • How much you make
  • What your living expenses are
  • How much in savings you have

Algorithmically, they are then able to determine where pain points exists and when to offer lesser settlement amounts. After an accident, the majority of Americans cannot wait for a settlement, nor can they afford prolonged litigation. This is because many Americans do not have enough in savings to cover their expenses if they are no longer able to work due to an injury. Insurance companies know that. They also know what cases are worth and how much to offer to entice plaintiffs to settle early for a lesser amount.

An Alternative to the Property and Casualty and Auto Insurance Business Models

As an alternative, the insurance industry should be run more like a utility, and the cosmic shift from the ‘90s needs to be reversed – and go from the benefit of shareholders back to the benefit of policyholders.

In 2020, as a result of fewer people being on the roads during the coronavirus outbreak due to social distancing guidelines and high unemployment rates, many auto insurers began giving back premiums (here is a list of which insurance companies paid back what by NerdWallet). There was so much excess profit and no claims that insurance companies essentially had to turn some of the money back over to their policyholders. But don’t be fooled, it was not out of the goodness of their hearts.

Therefore, it is so important for consumers to have access to Consumer Legal Funding, sometime called Pre-Settlement Funding.

Consumer Legal Funding allows everyday Americans to level the playing field by having the staying power they need to get the proper settlement that they deserve rather than the settlement that the insurance company thinks you deserve.

PODCAST: BEST PRACTICES FOR ATTORNEYS AND CLIENTS UTILIZING CONSUMER LEGAL FUNDING

In this episode of Cut to the Chase:, Eric Schuller, President of Alliance for Responsible Consumer Legal Funding returns to discuss some more of the finer points of how to utilize consumer legal funding for clients.   From selecting the consumer financing company to making sure you understand the terms and conditions of the funding, Eric helps lay it out here.  And remember, the funding is NOT a loan-it’s a product.   Listen in to see what that all means.

Cut To The Chase:: PART 2-BEST PRACTICES FOR ATTORNEYS AND CLIENTS UTILIZING CONSUMER LITIGATION FUNDING (libsyn.com)

Podcast regarding: The Ins and Outs of Consumer Litigation Funding

In this episode of Cut to the Chase:, Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding explains the mechanics of Consumer Legal Funding, sometimes called litigation funding for clients who might be struggling financially while their lawsuit is ongoing.   Different then litigation finance that helps cover the costs of litigation, this type of funding goes directly to the Plaintiff to help them cover their expenses and shortfalls that they are seeking to recoup in their litigation.   Mr. Schuller also discusses current regulatory issues in the space as well as the ethics behind such funding.

https://gregggoldfarb.libsyn.com/the-ins-and-outs-of-consumer-litigation-funding

How Consumer Pre-Settlement Funding Helps Personal Injury Victims

Submitted by Capital Now Funding

Personal injury accidents are never convenient, and they often leave the injured party with unexpected bills and unwanted financial stress.  Add to this the fact that insurance companies often drag their feet and rarely offer the full amount of money the client deserves, clients are often left being forced to take a lesser amount of money than they need.

Pre-settlement funding, also known as Consumer Legal Funding, has the power to provide clients with the money they desperately need, long before the case settles. And because this funding is non-recourse, it can be secured with no risk to the consumer.

How exactly does this process work, and how can you maximize your benefits?

The Basics of Pre-Settlement Funding

Let’s start with a discussion of how pre-settlement funding works, so you can see just how valuable it is.

Pre-settlement funding is provided to an injury victim who is waiting on a settlement, or for a lawsuit to resolve. Once approved, the consumer is provided money which can be used to pay deductibles, medical bills, routine home expenses, etc.  For a person that doesn’t have excess savings, pre-settlement funding provides a way for them to continue living their life as usual, without being forced to skip medical treatment, unable to buy groceries or worse unable to take care of their family. 

As mentioned previously, pre-settlement funding is non-recourse, which means if a settlement is not won, the funding will not have to be paid back. Additionally, pre-settlement funding must only be repaid when the case is closed which means no periodic payments are required throughout the process.

The Value to Personal Injury Victims

So, what are some of the reasons pre-settlement funding is so valuable?

  • Immediate financial relief. The biggest benefit is going to be immediate financial relief. Due to an accident, personal injury victims are often dealing with medical bills, new expenses, and the loss of their primary income – all on top of needing to keep paying regular expenses. Getting money quickly through pre-settlement funding can provide instant reprieve, helping them manage their finances much easier.
  • Stress management. Financial stress can be devastating. If the client isn’t sure how they’re going to get money, or if they’re dealing with debt collectors, it can make them feel anxious and under pressure all the time. If they’re already dealing with a disability or a serious injury, these effects can compound. Pre-settlement funding will help them find comfort and manage their stress much easier.
  • Reassurance. Even if a client has insurance, waiting on the insurance company can be very difficult.  Providing a consumer the option to get some money soon after an accident can help reassure them that everything is going to be okay.  And as mentioned above, providing a client with reassurance will help eliminate stress and make their life easier.
  • No risk. Pre-settlement funding carries no risk. The client won’t have to meet their contractual obligation if they don’t receive a settlement. This is also a key reason that pre-settlement funding is not a loan – there is zero obligation to repay the money if there are not enough proceeds from the settlement to pay back the funder.

Pre-Settlement Funding is a Valuable and Much Needed Resource

Every personal injury case is different, and every case has a different timeline for settlement.  When uncertain how long it is going to take to resolve the case and receive a settlement, pre-settlement funding can provide tremendous benefits to a person in need. 

When searching for a pre-settlement funding company, always be sure and do your homework.  Look for a company that has great reviews, responds quickly, and is transparent about their fees.  Lastly, always keep your attorney in the loop because they can help navigate the process.

If you are in need of cash after an accident, don’t hesitate to reach out to a reputable funding company.  They will provide much needed financial relief and leave you in the best position to give your case the adequate time it needs to settle.

4 Reasons You’ll Be Glad You Got Consumer Legal Funding also known as Pre-Settlement Funding

Submitted by: High Rise Financial

When an accident leaves you injured and unable to work, your bills can quickly pile up. A personal injury lawsuit could take months to settle. How are you supposed to get by in the meantime?

You may be wondering whether or not pre-settlement funding is right for your situation. If you’re on the fence about receiving money against your settlement, here are four reasons you may be glad you did. 

  • Fast Access to Funds

The most obvious benefit to pre-settlement is fast access to money. An accident can throw your life into chaos. Most Americans live paycheck to paycheck and can’t handle the financial burden of a sudden emergency. 

Pre-settlement funding can get you the money you need now. Typically, the legal funding company’s response will be swift. We quickly assess your case and determine your future settlement’s value. We also typically provide our clients with funds within 24-48 hours of receiving their application.

  • Easy Application Process

Unlike other methods of financing, our pre-settlement funding has an easy application process. We know you’re going through a lawsuit, and there’s no reason to complicate your situation any further. Just fill out the short application form. That’s it. There’s no credit check, no proof of employment, and no application fee.

After the legal funding company receives your application, a representative will contact you to discuss your case. 

  • It’s Not a Loan

The usual ways of getting money in a pinch are bank loans or payday loans. Personal loans can be tricky to obtain. You may need to put up collateral, such as your car’s title. You also need an excellent credit score to avoid high interest rates. Loan repayment starts right away in monthly installments.

Pre-settlement funding is not a loan. You don’t have to worry about monthly payments with added interest and multiple fees. We calculate repayment by adding the amount you borrowed to our flat-rate fee. Your lawyer handles this after you win your case. 

With a loan, you are held responsible for repayment even if you lose your case. Pre-settlement funding is risk-free. Similar to many personal injury attorneys, we work on a contingency-fee basis. If you lose your case, you don’t owe us anything.

  • Optimize Your Case

The most important reason to apply for pre-settlement funding is to give you more time to work on your case. You might have injuries, property damage, or car repairs to worry about after suffering an accident. If you can’t work, you might fall into debt. Insurance companies are known for throwing out lowball offers because you can’t afford to wait for a fair settlement.

You wouldn’t grocery shop on an empty stomach. So why negotiate your settlement on an empty bank account? Pre-settlement funding gives you early access to money you expect from your settlement so you can keep your bills paid while you work on your case. Get the full settlement you deserve without depleting your savings.

How Much Money Can I Get With Pre-Settlement Funding?

Because pre-settlement funding is on your settlement, the amount you can expect to receive is dependent on your particular situation. Therefore, the more you expect from your settlement, the more we can provide you in funding.

Companies can provide consumers with payments ranging anywhere from $500 to $250,000. Severe injury, disability, or wrongful death claims will typically see higher amounts than personal injury claims where a full recovery is predicted.

How to Apply for Pre-Settlement Funding

If your personal injury case is taking too long to settle, you may want to apply for pre-settlement funding. Pre-settlement funding could be the perfect solution for you, just as it has been for injured plaintiffs all over the country.

To apply for pre-settlement funding, you’ll want to do your homework and research the consumer legal funding company’s reputation. You’ll want to look for a legal funding company with positive Google reviews. Once you find the right legal funding company, contact them and they will begin the process with you and your attorney. 

Is Consumer Legal Funding a loan? Why does it matter?

The classification of Consumer Legal Funding as a loan is more than mere semantics. Consumer Legal Funding is the purchase of an asset; that being a portion of the proceeds of the consumer’s legal claim. This form of investment allows the consumer to access much needed support in order to obtain the financial assistance they need while their claim is making its way through the system.

You may ask yourself, so why does this matter?

In her publication “Harmonizing Third-Party Litigation Funding Regulations,” Professor Victoria Shannon Sahani clarified why Consumer Legal Funding is not a loan:

  • First, there is no absolute obligation for the funded client to repay the litigation funder. If the client is the claimant, the client must only repay the funder if the client wins the case. If the client is the defendant, the premium payments end as soon as the case settles, and if the defendant loses, the funder will not receive a success fee or bonus.
  • Second, litigation funding is non-recourse, meaning that if the client loses the case, the funder cannot pursue the client’s other assets unrelated to the litigation to gain satisfaction.
  • Third, the funder is taking on more risk than a traditional collateral-based lender; therefore, the funder is seeking a much higher rate of return than a traditional lender. This is not a unique concept. For example, an unsecured credit card typically carries more risk than a secured loan, so regulations tolerate much higher interest rates on unsecured credit cards than allowed even on subprime mortgages, which are backed by collateral. Similarly, as mentioned above, funders structure their agreements to avoid classification as loans in order to avoid the caps that usury laws place on interest rates for mortgages and credit cards.
  • Fourth, distancing funding even further from a loan, funders are taking on even more risk than unsecured credit cards because the credit card agreement is a bilateral transaction, while funding is a multilateral transaction.

Shahani explains that Consumer Legal Funding does not contain any of the characteristics of a loan, as illustrated in the chart below:

CharacteristicsLoanConsumer Legal Funding
Personal repayment obligationYESNO
Monthly or periodic paymentsYESNO
Risk of collection, garnishment, bankruptcy.YESNO

What is interesting to note is that no state where the legislature has carefully examined the product has classified it as a loan. In fact, states have gone so far as to declare that Consumer Legal Funding is unequivocally not a loan. In 2020, Utah passed HB 312 that specifically states that the product does not meet the definition of a loan or credit.

In Indiana for example: A statute was passed regulating the industry which specifically states: “Notwithstanding section 202(i) of this chapter and section 502(6) of this chapter, a CPAP[1] transaction is not a consumer loan.”  The statute further articulates: “This article may not be construed to cause any CPAP transaction that complies with this article to be considered a loan or to be otherwise subject to any other provisions of Indiana law governing loans.”

The Nebraska state legislature has declared: “Nonrecourse civil litigation funding means a transaction in which a civil litigation funding company purchases and a consumer assigns the contingent right to receive an amount of the potential proceeds of the consumer’s legal claim to the civil litigation funding company out of the proceeds of any realized settlement, judgement, award, or verdict the consumer may receive in the legal claim.”

In Vermont: “Consumer litigation funding means a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgement obtained from the consumer’s legal claim. “

In other words, Consumer Legal Funding is specifically classified as a purchase, not a loan. And it’s not just the state legislatures that have weighed in on this, the courts have as well.

In 2018, the Georgia Supreme Court affirmed the Georgia Court of Appeals ruling, that the product is not subject to the Industrial Loan Act. The Appeals Court stated: “Unlike loans, the funding agreements do not always require repayment. Any repayment, under the funding agreement is contingent upon the direction and time frame of the Plaintiffs’ personal injury litigation, which may be resolved through a myriad of possible outcomes, such as settlement, dismissal, summary judgment, or trial.”

Even dating back to 2005, when the New York Attorney General’s office came to an agreement with the industry, it stated in its press release: “The cash advances provided by these firms are not considered “loans” under New York State law because there is no absolute obligation by a consumer to repay them.”

So, this leads me back to my opening question: Why does it matter?

Classification matters, because once you mischaracterize the product by calling it a loan, you limit consumers’ availability to access it by subjecting Consumer Legal Funding to state laws that regulate loans. According to MarketWatch, in January of 2021, as many as 74% of Americans are living paycheck to paycheck. When their income stream is interrupted (typically due to an accident), they desperately need some economic assistance to help them through the lengthy and extensive process of filing their legal claim.

So we ask State Legislators, when you are deciding how best to regulate this important financial product, to do what is best for your constituents by providing them access to economic assistance during their time of need, and ensuring that they are fully informed as to the terms and conditions of the transaction, by having their attorney review it with them in order to confirm that it is properly classified as a purchase.

Blanket statements labelling Consumer Legal Funding as loans only serve to hurt those in need of its assistance, especially at a time when they need it.


[1] CPAP Civil Proceeding Advance Payment

Consumer Legal Funding Going into 2021

As we put 2020 in our rear-view mirror, let us look at what took place in the space of Consumer Legal Funding.

The American Bar Association (ABA) adopted the Best Practices for Third-Party Litigation Funding. In it, the ABA lays out a set of guidelines that attorneys should follow when working with Consumer Legal Funding companies. This will ensure that consumers, attorneys, and funding companies will be protected, and the product will be offered properly.

The New Jersey State Bar Association (NJSBA) board voted to support the ABA resolution on litigation financing.

To ensure consistency across the country, ARC updated our set of Best Practices to be in line with the ABA set of Best Practices on the industry. This will ensure that a consumer in Maine will have the same set of Best Practices as a consumer in Oregon.

As a follow-up to the new set of Best Practices, the ABA held a virtual CLE to explain how they would be implemented. ARC participated and explained how our Best Practices are beneficial for consumers and the industry as a whole.

In addition to the ABA, the New York City Bar Association published its report on use of Litigation Funding for Consumers. In the report, they publish a set of guidelines that should be followed in a contract with the consumer, including stating that the agreement is a non-recourse transaction, ensuring acknowledgement by the consumer’s attorney, and affirming non-compensation to the consumer’s attorney.

The California Bar Association also published its opinion on the industry, which was consistent with what was stated by the ABA and the New York City Bar Association.

Additionally, the state of Utah introduced and passed legislation to regulate Consumer Legal Funding. The legislation—which was passed nearly unanimously—insists on clear notice and disclosure to the consumer as to the terms and conditions of the contract. The consumer’s attorney will be made aware of the transaction and that there are no rate restrictions on the product, thereby allowing the free market to dictate rates. Each company will have to report on an annual basis the rates they do charge to the state.

As we roll into 2021, we are hoping that other State Associations will follow the lead of the ABA, NJSBA, the New York City Bar Association and the California Bar Association in setting up practical guidelines for the use of Consumer Legal Funding.

We also hope that other State Legislatures follow what Utah, Nebraska, Ohio, Maine, and Oklahoma have done in passing sensible legislation that provides consumer protections while allowing the industry to operate in a free market environment.

California Bar Issues Formal Opinion on Third-Party Litigation Funding

On October 1, 2020 the California Bar Association published Formal Opinion NO. 2020-204 on Third-Party Litigation Funding.

The bar’s opinion states that attorney and consumer must be fully informed as to the terms and conditions of the contract. Additionally, the lawyer must ensure competence in advising on any litigation funding agreement, and is obligated to obtain a client’s permission before discussing any confidential information with the funding company.

During the comment period of this opinion, the Alliance For Responsible Consumer Legal Funding (ARC) weighed in on the issue by submitting a letter to the review committee. In the letter ARC stated: “The Proposed Formal Opinion properly establishes that a lawyer is under an ethical obligation to decline to represent a client in legal funding negotiations if the lawyer does not have sufficient knowledge and expertise to help the client avoid being exploited in the legal funding relationship.”

In addition, it was stated that this opinion will give consumers additional confidence in the industry: ”By requiring adequate representation in the legal funding negotiation, bad actors will be less likely to survive. As those bad actors are driven out, consumer confidence in legal funding services will rise and the resulting increase in demand for legal funding services will draw even more reputable funders into the market. This, in turn, will create stronger incentives for funders to cater to the price and quality preferences of individual plaintiffs.”

The California Bar Association and the American Bar Association have each released a recent opinion on Litigation Funding. In both opinions, the bars acknowledge a need for the product, and propose best practices for how consumers and attorneys should work with companies that offer financial assistance to consumers in their time of need.

ARC and its member companies continue to ensure that both consumers and their attorneys are fully-informed on the terms and conditions of the contract, and that the only parties that have a say in the prosecution of the case are consumers and their attorneys. These are enforced in the most recent set of Best Practices that ARC and its companies have released.

ARC is very pleased the California Bar Association, the largest State Bar Association in the United States with over 242,000 members, has taken this position on the issue and put forward these important guidelines.

Alliance for Responsible Consumer Legal Funding (ARC) Updates its Best Practices

On August 3, 2020 the American Bar Association House of Delegates passed resolution 111A by a vote of 366-10, regarding the “Best Practices for Third-Party Litigation Funding”. The Best Practices addressed Consumer Legal Funding, Commercial Litigation Finance and Attorney Funding.

In reviewing the Best Practices for Consumer Legal Funding, ARC and its members made the decision to update the set of Best Practices our companies will follow. By following the guidance of the ABA, ARC and its members are setting a new high standard that others in the industry should follow.

The updated Best Practices can be found on the ARC Website

  • Each member agrees the funding agreement will be in writing.
  • Each member agrees the written funding agreement will make clear the non-recourse nature of the investment the funder is making in the claim.
  • Each member agrees the funding agreement will state who is responsible for paying the funder, from what source (e., the recovery after trial or settlement), and when (e.g., after receipt by the attorney of judgment or settlement funds).
  • Each member agrees the funding agreement will be structured so that the consumer, not the funder, retains the right to control the conduct and litigation of their claim.
  • Each member agrees the funding agreement will state: the amount of funding to be provided to the consumer, the future amounts owed or method of calculating the amounts owed to the funder, and provide an independent dispute resolution process.
  • Each member agrees the funding agreement will include a recommendation that a consumer obtains legal advice before entering into the funding agreement.
  • Each member agrees that they will not intentionally provide the consumer funding in excess of the consumer’s needs at the time of such funding.
  • Each member agrees that they will not intentionally over-fund a case in relation to their perceived value of the case at the time of such funding.
  • Each member agrees that they will not advertise false or intentionally misleading information.
  • Each member agrees that they will not offer or pay commissions or referral fees to any attorney or employee of a law firm for referring a consumer to the member.
  • Each member will strive to achieve a rating of B or better with the Better Business Bureau.

On November 16th 2020, ARC will participate in a CLE Webinar with the ABA titled “Consumer Litigation Funding: The Basics, Current Regulatory, Ethical and Confidentiality Issues,” in which these Best Practices and other issues that affect the industry will be discussed.

When consumers and their attorneys are dealing with Consumer Legal Funding companies, they should look for the ARC Logo and ensure they follow the Best Practices of the organization.

Any questions on this or other issues regarding Consumer Legal Funding can be addressed to info@arclegalfunding.org

ABA Adopts Guidance in Third-Party Litigation Funding

On August 3, 2020, The American Bar Association (ABA) House of Delegates, by a vote of 366-10, voted to adopt the resolution for “Best Practices for Third-Party Litigation Funding”. This established a slew of national guidelines that law firms, consumers and legal funding companies should follow.

We applaud the ABA in setting these standards that ARC and its members already follow. Some of the items that they highlight are:

  • The arrangement should be spelled out in writing.
  • The writing should make clear the non-recourse nature of the investment the funder is making in the claim; how the funder will be compensated
  • Who is responsible for paying the funder, from what source (g., the recovery after trial or settlement) and when (e.g., time period after receipt of judgment or settlement funds)
  • The arrangement should be structured so that the client retains control of the litigation, and not the funder.
  • Lawyers should be cautious in making case-related reports or predictions.
  • Funding agreements should state the amount of funding to be provided, the amount or method of calculating the return to the third-party funder, and how and when the proceeds of the party’s recovery are to be distributed among Funding agreements should provide a fair, transparent, and independent dispute resolution process.
  • Funding agreements also should include a recommendation that a party obtain independent legal advice as to whether to enter into the proposed There should also be a confidentiality obligation for the funder that survives termination of the agreement
  • In client-funder financing, the third-party funder and the party should be the sole parties to the funding agreement, in order to avoid any potential attorney conflicts of interest, should the party and the funder disagree on a material issue during the course of the litigation. Many non-recourse finance agreements ask the attorney to promise the funder that the attorney will notify the funder when the case is resolved.
  • Limitations on a third-party funder’s involvement in, or direct or indirect control of, or input into (or receipt of notice of), either day-to-day or broader litigation management and on all key issues (such as strategy and settlement), should be addressed in the funding agreement.
  • Lawyers may want to obtain written acknowledgement that the funder will not seek to control the litigation or the expense.

These items are consistent with the statutes that ARC and its members support in legislation. ARC fully supports proper regulation of the Consumer Legal Funding Industry across the country.