Dangers of Third-Party Litigation Funding
Today’s Social Inflation Insight focuses on the dangers of third-party litigation funding and the regulatory effort to bring its abuse to an end.
Many factors contribute to social inflation, but one critical aspect is the growth of third-party litigation funding (TPLF). This influx of funds has increased the yearly number of active, high-profile lawsuits and incentivized attorneys to push for record-high monetary settlements.
CLM, an affiliate of The Institutes, puts out a monthly magazine. In its April 2022 edition, American Property Casualty Insurance Association (APCIA) EVP and Chief Legal Officer Stef Zielezienski does a masterful job of highlighting the effect TPLF and aggressive attorney action have had on turbocharging social inflation. He also highlights the damage lawsuit abuse has done to consumers, businesses, and even the plaintiffs.
According to Zielezienski, the best evidence indicates attorneys and TPLF investors benefit financially in ways that the plaintiffs who employ them do not.
Unsurprisingly, numerous states are looking to crack down on TPLF and its corrosive effects on the legal system. For many, the first step is passing transparency laws that require disclosing who is financing a lawsuit. Below is a list of the active TPLF reform efforts across the U.S.