Report Takes Aim at Lack of Third-Party Litigation Funding Disclosure

Third-party litigation funding has become a multibillion-dollar business and is contributing to the growth of insurers' legal costs and the size of settlement payouts, according to a new report from the Insurance Information Institute (Triple-I).

The Triple-I report cited analysis by Swiss Re that found that more than half of the $17 billion in third-party litigation funding monies allocated worldwide in 2020 were spent in the United States. "Hedge funds and family offices (private wealth management advisory firms) are financing lawsuits brought by either individuals or businesses and many have profited by doing so," a Triple-I statement said.

"Third-party litigation funding (TPLF) has devastatingly become a multibillion-dollar global industry, turning lawsuits into investments at the expense of societal good," Sean Kevelighan, the Triple-I's CEO, said in the statement. "It is unconscionable that plaintiffs are able to further exploit the legal system by proactively seeking unassociated third parties to finance their lawsuits."

The Triple-I report, What Is Third-Party Litigation Funding and How Does It Affect Insurance Pricing and Affordability? notes that much of the concern around third-party litigation funding is over the opaque nature of the industry's practices, in particular the lack of disclosure of whether outside financing is involved in cases.

"Few US states or territories require attorneys or their clients to disclose TPLF agreements to the opposing side," the report said.

That lack of transparency around lawsuit financing can extend a suit's duration and increase legal and settlement costs, the report said.

"Third-party litigation funding agreements are rarely disclosed to the court or the litigants, and as such transparency is essential if the judicial process is to proceed in an orderly and cost-effective manner," Mr. Kevelighan said.