Law firms pursuing lawsuits tied to this year’s Los Angeles wildfires are drawing growing interest from financial institutions, including investment banks and hedge funds.
The demand for funding high-cost, high-reward litigation has created new business for third-party funders seeking returns from mass tort cases.
Companies such as Jefferies Financial Group Inc. and Oppenheimer Holdings Inc. are offering financing to law firms representing residents suing Edison International and the Los Angeles Department of Water and Power (LADWP).
The fires, including the Eaton and Palisades blazes, rank among the most destructive in US history. Lawsuits stemming from these events could generate claims worth tens of billions of dollars.
Edison faces potential liability exceeding $10 billion related to the Eaton Fire, which resulted in 18 deaths and the destruction of approximately 9,400 structures.
The company may also be exposed beyond direct damages. Under state law, the company could be required to reimburse the California Wildfire Fund up to $3.9 billion if its equipment is determined to have caused the fires.
Meanwhile, lawsuits against LADWP allege responsibility for the Palisades Fire, which killed 12 and damaged about 7,000 structures. One insurer has estimated that damages tied to only a fifth of the structures affected in the Palisades area exceed $4 billion.
The litigation finance market in the US has grown to $16 billion over the past two decades. Funders typically extend loans with annualized interest rates that can exceed 20%, expecting repayment within three to four years. Law firms use these loans to manage ongoing case portfolios.
Jefferies, active in wildfire litigation since the 2019 PG&E Corp. bankruptcy, has returned to the space. In a January 2024 solicitation, the firm promoted its experience in mass tort financing to attorneys involved in the LA fire cases.
Oppenheimer Holdings has also entered the litigation funding arena. In March, Ron Ryder, co-head of special assets trading at the firm, said in a solicitation email that Oppenheimer was representing institutional investors interested in financing law firms or purchasing a share of attorneys’ contingency fees.
The firm has also been involved in trading insurers’ subrogation claims tied to the fires – claims that give investors rights to seek recovery from utilities. This practice previously gained traction during the PG&E bankruptcy but has attracted criticism from California regulators.
California law does not require disclosure of litigation funding arrangements in court, but attorneys must notify clients of such agreements under state ethics guidelines. The issue has attracted legislative interest, with proposals circulating to increase transparency and regulate profits.
The potential size of the litigation has also drawn criticism from public entities. The California Earthquake Authority, among others, has labeled hedge fund purchases of subrogation claims as opportunistic and unethical.
The involvement of third-party litigation funders is also influencing insurance markets. The Council of Insurance Agents & Brokers reported that litigation funding is contributing to rising premiums in several lines of business, including umbrella and automobile insurance. Insurers are adjusting their pricing and policy terms in response to the heightened legal exposure driven by well-funded mass tort activity.
In parallel, the marketing surrounding litigation has expanded significantly. The Insurance Information Institute found that legal service providers spent more than $2.5 billion on nearly 27 million advertisements in 2024 alone.
Much of this advertising push has been underwritten by litigation financing, which enables firms to scale client acquisition efforts in high-profile cases such as the LA wildfires.
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