I was forwarded a Forbes Magazine article from an outraged physician.
The article explains how hedge funds in some states are financing medical malpractice lawsuits in exchange for a percentage of any judgment. The firm reviews the case, and, if it believes the case has merit, will provide money to finance litigation and expenses to the plaintiffs and their attorneys. One firm offers to advance up to $1 million in expenses in order to fund a case. If the plaintiff doesn’t win or settle the case, he or she owes the finance company nothing.
The Forbes article notes that when a similar system was initiated in Australia, the volume of litigation rose by 16.5%. Third party financing of plaintiff lawsuits reportedly totaled $1 billion in 2010. The article also asserts that such a system will increase defensive medicine and decrease the availability of physicians.
After reading the article, I had mixed emotions.
On its face, the concept of financing of plaintiff lawsuits seems distasteful. Giving unscrupulous attorneys a means to pursue frivolous lawsuits seems morally wrong. However, imagine that you were running such a hedge fund. Would you be willing to “invest” $100,000 into a lawsuit that didn’t have a very good chance of winning? I don’t have any information regarding the types of cases financed, but logically I can’t see these types of investments being used to advance frivolous litigation.
The article argues that there should be no third party financing of “frivolous lawsuits.” Isn’t malpractice insurance just a form of third party financing for defendants? If medical malpractice defendants have tremendous monetary resources from insurance companies in defending a case, how is providing the same resources to malpractice plaintiffs any different?
I do see a downside to such financing in “class action” lawsuits which often provide only marginal benefits to the members of the class while providing significant monetary benefits to the plaintiff attorneys. Otherwise, I’m not sure that I’m as offended by the idea as other people seem to be.
Malpractice cases should be decided on the merits of the case, not on whether one side has enough money to pursue the case.
What do you think? Is investor financing of plaintiff lawsuits a bad idea?