Third-party litigation funding lets a plaintiff, or less commonly a law firm, bring in outside capital from a specialty funder to cover legal fees, expert costs, and case expenses without touching the client's own balance sheet. The arrangement is typically non-recourse: if the case is lost, the funder absorbs the loss and has no claim against the plaintiff's other assets, which is what distinguishes it from a conventional loan. In exchange, the funder receives a negotiated share of any settlement or judgment, often structured as a multiple of the amount invested or a percentage of recovery, whichever is greater.

The industry exists because litigation is expensive and slow, and meritorious claims can go unfiled or get settled cheaply simply because a plaintiff cannot carry years of costs. Funding is most common in commercial disputes, patent litigation, and mass tort matters where the projected recovery is large relative to the cost of proving it. Funders conduct their own diligence on the merits and the expected value of the claim before committing capital, which means a funding decision is itself a signal about how a sophisticated financial party views the case's prospects, though it is never a guarantee of any outcome.

The unsettled legal questions are about control and disclosure. Ethics rules require that the attorney's independent professional judgment stay with the attorney and client, not the funder, so funding agreements are drafted to keep the funder out of litigation strategy and settlement decisions. Disclosure of funding arrangements to the court or opposing party is inconsistent: some federal districts and states require it, most do not yet have a governing rule, and the debate over mandatory disclosure, driven partly by discovery and bias concerns, remains active and unresolved.

Plaintiffs and firms turn to litigation funding to pursue high-cost, high-value claims they could not otherwise afford to litigate to conclusion, and funders use expected-value-style analysis to decide which cases to back and on what terms. Because a funding agreement changes who bears the downside risk of a case, it also changes the incentives around settlement, which is worth accounting for explicitly rather than treating funding as a purely financial afterthought.