Shannon Martin, a licensed insurance agent and analyst for Bankrate, stated in an August 13 post that policyholders are paying more for insurance while insurance companies are losing money due to third-party litigation funding (TPLF), which is driving an increase in lawsuits.
"The insurance industry is in the midst of another crisis, but until recently, this one was flying under the radar," said Martin. "Many insurance companies have been reporting record losses while insurance premiums for many consumers have reached astronomical levels. Why are we paying so much more for insurance even though firms are still going belly up? One key reason: third-party litigation funding has become a billion-dollar money-maker for lawyers and insurance companies—and policyholders are paying the price for rising litigation."
According to Martin’s post, TPLF is a billion-dollar industry involving third parties such as hedge funds investing in lawsuits in exchange for a share of the settlement or award. TPLF can affect the course of a lawsuit because the funder may influence whether a case is continued or settled to maximize profits. Plaintiffs in lawsuits typically receive less of their settlement or award when TPLF is involved because, in addition to the 33% lawyers take on average, the third-party funders also take their cut.
In 2021, the federal court of New Jersey issued a rule requiring disclosure around TPLF, which involves a third party such as a hedge fund providing the capital for a lawsuit in exchange for a portion of any settlement or award, according to the U.S. Chamber of Commerce Institute for Legal Reform (ILR). The ILR said TPLF is a "multibillion-dollar secretive industry that operates primarily in the shadows," allowing third parties such as hedge funds to exert influence over lawsuits, often without the knowledge of juries and judges.
However, in February, the Civil Practice Committee of the New Jersey Supreme Court rejected a request from the New Jersey Civil Justice Institute (NJCJI) to require TPLF disclosure in civil cases in the state’s Superior Court. The committee said, "there is not sufficient experience to meaningfully develop and recommend a rule change at this time. Rather, if at some point in the future, the issue becomes ripe for consideration, the committee can consider a rule proposal."
On July 11, Congressman Darrell Issa, chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet introduced a discussion draft of the Litigation Transparency Act of 2024. According to a press release from Issa's office, this legislation would require TPLF agreements in civil lawsuits to be disclosed at the onset of the case. "This legislation is a breakthrough measure that will target serious abuses in our litigation system and achieve long-overdue transparency," Issa said. The press release also noted that current civil litigation is often funded by commercial lenders, hedge funds, and sovereign wealth funds operating through shell companies.
Martin has more than 16 years of experience in the insurance industry, according to Bankrate. She worked at Geico and Jerry before joining Bankrate.
