Increased Transparency in Litigation Funding Could Aid Policymakers

Calls for increased transparency in the litigation finance industry are being brought by opponents of the practice, with the aim of forcing funders to disclose detailed information around funding agreements that they would prefer to remain confidential. A new op-ed argues that a measured and appropriate level of transparency would enable lawmakers to develop smart policy informed by accurate data and avoid potential issues caused by one party having less thorough disclosure requirements.

Writing in Bloomberg Law, Michael Menapace, non-resident scholar at the Insurance Information Institute, and partner at Wiggin and Dana, provides an argument in favour of increased transparency in litigation finance in order to address the lack of a unified legislative framework to regulate the industry across the U.S. Referencing the recent GAO study that highlighted the lack of current and verifiable data around litigation funding, Menapace points out that both legislative and judicial decision-making around the use of third-party funding could be improved by increasing the availability of such data.

Menapace also suggests that under the current structure, plaintiffs are at an unfair advantage because defendants must disclose any legal liability insurance they have in place, whilst plaintiff funding does not face the same requirements, resulting in an imbalance when it comes to parties evaluating pre-trial settlements. Furthermore, Menapace argues that without transparency, there is the inherent possibility of conflicts of interest, due to funder involvement remaining undiscovered, and therefore negatively impacting the judicial process.