Litigation Finance Waterfall
Definition
A litigation finance waterfall is the contractual order for distributing case proceeds among plaintiffs, counsel, funders, insurers, and other claimants after a settlement or judgment.
Why it matters
The headline case value is not the investor return. Priority, caps, fee sharing, expenses, appeals, and insurance recoveries determine how much of a successful outcome reaches each participant.
Common misconceptions
- •A large settlement does not guarantee a high funder return if fees, expenses, or senior priorities consume proceeds first.
- •Waterfalls can differ materially between single-case funding, portfolio funding, and law-firm lending.
Technical details
Typical Priority
Common waterfalls repay case costs and senior obligations first, then funder principal and preferred return, then counsel fees and plaintiff proceeds according to the governing agreement.
Investor Diligence
Review priority language, return caps, expense reimbursement, appeal funding obligations, settlement consent rights, and whether adverse-cost insurance sits senior or parallel to the funder.