Calls from Reinsurers to Regulate US Litigation Funding Continues

In any discussion on rising insurance costs, fingers are sure to be pointed at Litigation Finance. LitFin is a $17+ billion industry, with more than half of assets being leveraged by US clients. Reinsurers have claimed that third-party legal funding is the catalyst for the increase in excessively large legal awards.

Insurance Journal explains that litigation funding is being blamed for the increase in liability insurance premiums in a number of industries—including commercial auto, general liability, and medical malpractice. One might think the impetus would be on manufacturers and medical care providers to conduct themselves in a way that won’t attract lawsuits. The alternative is to complain about the rise in verdicts of over a million dollars—which is the path many have chosen.

Still, the size of verdicts is growing. From 2010 to 2019, awards surpassing $1 million increased from 29% to 36%. During the same time frame, average awards for cases over $1 million rose from $8 million to more than $10 million. Is this just general inflation? Or is litigation funding really causing havoc among insurers and the insured?

Michael McDonald of Morning Investments Consulting doesn’t agree that LitFin is the cause of high insurance prices. He explains that litigation funding makes it possible for meritorious cases to find their way to court, and this represents increased access to justice, rather than a cudgel with which to beat insurers. Indeed, insurers could benefit from some aspects of third-party legal funding, such as making their own investments or monetizing legal assets.

So while funders are creating solutions that work for attorneys, clients, and investors, insurers and reinsurers are fighting for increased regulation. Is this out of an abundance of caution—or a desire to hobble a thriving industry that’s making life harder for those who aren’t meeting their obligations to customers?