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When a personal injury client uses pre-settlement funding, the attorney's compliance burden is light but not zero. This checklist captures the disclosures, file-handling, and settlement distribution steps every plaintiffs' attorney should follow — derived from Ohio Rules of Professional Conduct and the model rules most other states track. It is general guidance, not legal advice, and should be cross-referenced with each state's specific rules.
Before the Client Signs With a Funder
1. Confirm the funder is reputable
If you have not worked with the funder before, review their sample contract for ALFA alignment (non-recourse, written disclosure, rescission window, no personal guarantees). If the contract has red flags, advise the client.
2. Disclose any referral relationship
Rule 1.7 requires disclosure of any conflict of interest. If you have referred clients to this funder repeatedly, disclose that. Do not accept any payment from the funder in exchange for the referral.
3. Explain the non-recourse character to the client
Many clients confuse funding with a loan. Spell out: no monthly payments, no personal liability if the case loses, repayment only from settlement proceeds.
4. Document the recommendation
Memorialize in the file: what funder(s) were presented, why, and what the client decided. This protects against later challenges by the client or by a successor lawyer.
At Funding Closing
5. Review the lien acknowledgment language
The funder will request your signature on a lien acknowledgment confirming you will pay them directly from settlement. Read it. Specifically watch for:
- Personal guarantee language (do not sign)
- Obligations beyond simple lien remittance (do not sign)
- Confidentiality terms that might conflict with discovery obligations
- Indemnification language extending beyond mere remittance error
6. Confirm the funding amount and rate match what the client described
Funders occasionally adjust offers between application and closing. Cross-check the final contract terms with the client's expectation before they sign.
7. Save the executed contract to the client file
You will need this at settlement for the payoff calculation. Save the contract, the lien acknowledgment, and any payoff schedules.
During Case Pendency
8. Track outstanding funding balance
As the case progresses, the balance grows. Maintain awareness so client expectations remain realistic — particularly if multiple advances stack.
9. Re-evaluate before additional advances
If the client wants a second advance from the same or a different funder, recalculate total liens against projected settlement. If total liens exceed roughly 15–20% of projected recovery, counsel the client that net recovery is being significantly eroded.
10. Notify funder of major case developments
Some contracts require notice of trial dates, mediation, settlement offers above a threshold, or major rulings. Comply with these notice provisions to avoid contract disputes at settlement.
At Settlement
11. Request a final payoff letter from the funder
Before disbursing, request a current payoff figure in writing. Verify against the contract's published schedule.
12. Disclose the lien to the settling defendant if required
Most jurisdictions don't require lien disclosure to the defendant in pre-settlement funding contexts — the funder is paid from the plaintiff's net, not from the gross settlement. But verify any settlement-document language attesting to "no other interests in the proceeds" — those representations may need adjustment if a funding lien exists.
13. Pay the funder before disbursing to the client
Standard practice: contingency fee deducted first (under your fee agreement), then funding lien paid, then medical liens, then client. Failure to pay the funder before client disbursement is the most common malpractice risk in funded cases — once funds reach the client, the funder may not be able to recover, and the firm bears the loss.
14. Document settlement disbursement
Issue a closing statement to the client showing the full waterfall: gross settlement, contingency fee, expert costs, funding lien, medical liens, net to client. Have the client sign acknowledging receipt.
15. Request written satisfaction from the funder
After payment, obtain a written release of lien from the funder. File it with the case records.
If the Case Loses
16. Confirm the funder will not pursue the client
Non-recourse means non-recourse. Send the funder written notice of the defense verdict and request written acknowledgment that they release any claim against the client.
Common Pitfalls
- Forgetting the lien at settlement. Set a reminder at case opening; update it on every funding closing.
- Disbursing to the client before paying the funder. Build a trust-account workflow that blocks client disbursement until lien holders are paid.
- Allowing multiple stacked advances without recalculating client net. Each new advance should trigger a re-projection of post-fee, post-lien client recovery.
- Receiving compensation from the funder. Hard ethical line. Politely decline any "thank you" payments, gifts, or referral fees.
- Sharing case file without client authorization. The funding application includes authorization — but if a funder requests records outside that scope, get express written consent.
Frequently asked questions
Generally no. The funder's interest is in the plaintiff's net proceeds, not in the gross settlement. However, some jurisdictions are starting to require disclosure of third-party litigation finance in certain contexts (federal cases, MDL proceedings). Check local rules.
Yes, but doing so will prevent the client from completing the funding. Counsel them on the consequences and document the refusal.
Refuse. Funder involvement in case strategy is both unethical and contractually invalid in any reputable contract.
Match your standard case-file retention policy — typically 5–10 years post-closure in most jurisdictions.
Yes. The most common scenarios involve disbursing to the client without paying the lien, or accepting referral fees. Both are serious ethics violations.
Bottom line: Pre-settlement funding compliance is procedural rather than substantive — but the procedural discipline matters. Build a standard checklist into your case-management workflow and the risk drops to near-zero. The Instabridge attorney portal automates most of the lien tracking and remittance steps.
