Litigation Risk Management Analysis and Litigation Funding

Litigation Risk Management is the discipline of applying decision tree risk analysis to litigation. Dr. Bruce Beron, the founder and President of the Litigation Risk Management Institute has been assisting Fortune 500 companies and startups by applying these tools to complex, high-stakes litigation for over thirty years. He has also spent three years as the Chief Investment Officer of a third party litigation funding startup and is intimately familiar with the issues of case selection and settlement.

The Litigation Risk Management approach to valuing litigation for investment goes well beyond the simple assignment of a probability to liability and making a “conservative” or “realistic” estimate of damages. It is an iterative process. Analysis is started very simply and elaborated only as necessary until further refinements or complications do not change the results of the analysis or improve its quality. All relevant issues are considered, either explicitly or implicitly. Legal and factual matters are included, but only insofar as they will affect the likelihood of the findings of the trier-of-fact. Generally, the analysis will focus on the probability of liability and the expected range of damages if liability is established. Sometimes they are logically dependent, but often they are independent, although almost always linked probabilistically.

The process produces a case value that is both robust and defensible. Analysis reveals which issues are most critical to that value, both for purposes of further due diligence and for ongoing monitoring as the case progresses. Results are presented as an expected or mean value of the case and a probability distribution on recovery, either from the plaintiff’s perspective or that of the funder. The primary product of such an analysis is a communicable, defensible appreciation that the analysis captures the uncertainty in the simplest, most direct way possible.

In addition to being invaluable for investment decisions, these tools are extremely useful in determining the appropriate settlement value. Given that the funder has a diversified portfolio and should be willing to play the odds, any settlement offer meaningfully less than the expected value of the case, updated appropriately of course, should be rejected and the case tried. There are issues around how the funder can influence the settlement decision given that it does not control the case, but we have developed means to this end.

Beyond the decision tree analysis, when settlement negotiations are imminent or have already begun, our Negotiation Strategies services, the application of a combination of decision and game theory can forecast the outcome of the negotiation with uncanny accuracy, as well as produce a strategy to maximize the possible outcomes. We typically save defendants 30-40% beyond what the attorneys think is the best possible settlement, and see increases of 10-20% for plaintiffs.

We would be glad to provide further information on our services at your request .