It’s fewer than two decades old, but Litigation Finance has blossomed into an industry worth $17 billion across the globe. Just over half of that money, 52%, is being spent in the United States. One reinsurer places blame on legal funding for enabling more large legal awards in cases involving medical malpractice and various types of liability. Calling it “social inflation,” reinsurers decry the industry currently hard at work increasing access to justice for those who can afford it least.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
It’s fewer than two decades old, but Litigation Finance has blossomed into an industry worth $17 billion across the globe. Just over half of that money, 52%, is being spent in the United States. One reinsurer places blame on legal funding for enabling more large legal awards in cases involving medical malpractice and various types of liability. Calling it “social inflation,” reinsurers decry the industry currently hard at work increasing access to justice for those who can afford it least.
Insurance Journal explains that over the past ten years, commercial auto lawsuits and general liability cases are ending in multi-million dollar awards far more than in previous years. For claims involving vehicle negligence, the percentage of outsize awards rose from 21% to 30%.
Insurers complain that larger verdicts lead to higher loss ratios and larger premiums for all clients. But surely that’s a reason for businesses to behave better, rather than restrict access to judicial relief for those who have been victimized?
We hear insurance providers lamenting their losses, as well as the fact that third-party funders are enjoying high returns on their investments. Could that be because funders use their talents to help clients and businesses, while insurers spent much of the pandemic looking for reasons to not make good on their policies?
Not everyone agrees that Litigation Finance is the problem. Michael B McDonald of Morning Investments Consulting, explains that funding is used for meritorious claims—so while this may increase the number of lawsuits overall—it does not make individual lawsuits more expensive. McDonald also points out that legal funding can be used by law firms who are typically barred from raising equity as other businesses can.
Debate over funding issues like disclosure, percentages, and security for costs are bound to continue. But the evidence that further regulation is necessary appears to be lacking.
