Recent Opinion from Eastern District of Louisiana Addresses Litigation Funding Companies

The rise of litigation finance companies is now well-documented, up to and including Hulk Hogan’s lawsuit against Gawker. As noted by the ABA Journal, “the practice started in Australia and the United Kingdom in the mid-1990s and entered the U.S. commercial market in the mid-2000s. It is now a multibillion-dollar global industry with a dozen commercial litigation funding companies in the U.S. market.”

In a personal injury context, plaintiffs, or their attorneys, may contract with a third-party payor, e.g., a litigation funding company, to pay for medical treatment. As seen in a recent case in the United States District Court for the Eastern District of Louisiana, this raises significant collateral source rule issues in those states adhering to the rule, including Louisiana. The collateral source rule is a rule of evidence and damages that precludes defendants from reducing their liability based on medical funding independently of and without contribution from defendants.

In Williams v. IQS Ins. Risk Retention, 2019 WL 937848 (E.D. La. 2019), plaintiffs asked the court to exclude evidence and testimony regarding external sources of funding for plaintiffs’ medical treatment, specifically a litigation funding company. Plaintiffs argued that the collateral source rule applied to bar such evidence. The court agreed that the collateral source that paid the charges was inadmissible from an evidence standpoint.

However, the court noted that the parties’ real dispute centered on whether plaintiffs could recover the difference between what the treating physicians billed and the amounts that the physicians ultimately accepted in payment. In fact, plaintiffs’ attorneys had contracted with the finance company to pay the “full billed rate,” and then the finance company paid the physicians significantly less, with the finance company collecting the difference.

In Williams, however, the court ruled that the defendants would owe only what was actually paid to the health care providers. Significant to the court’s reasoning was that the plaintiffs themselves were not parties to the agreement and had no knowledge of the arrangement. Accordingly, the court found that plaintiffs could not establish that they had paid any benefit or suffered any diminution in their patrimony to obtain the discounted payments.

In light of the opinion in Williams, it is important in future personal injury litigation where litigation funding companies are used that the parties identify any financing or funding agreements, the parties and terms of such agreements, and the actual amounts paid to healthcare providers. This investigation may result in much lower special damage figures.