Investors are funding lawsuits without disclosing their role – InsuranceNewsNet

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According to a new report from the Insurance Information Institute (Triple-I), investors who have no interest in a lawsuit beyond the desire to profit from its outcome are contributing to the growth of insurers’ legal costs and payments of settlement.

“Third-party litigation funding (TPLF) has devastatingly become a multi-billion dollar global industry, turning lawsuits into investments at the expense of the good of society,” said Sean Kevelighan, CEO of Triple-I. “It is unconscionable that plaintiffs can further exploit the justice system by proactively seeking out unassociated third parties to fund their lawsuits.”

Triple-I’s report notes that an analysis by Swiss Re found that more than half of the $17 billion in TPLF funds allocated globally in 2020 was spent in the United States. Hedge funds and family offices (private wealth management advisory firms) finance lawsuits brought by individuals or companies and many have profited.

Millions are unfamiliar with the TPLF industry, with nearly two in five Americans (39%) surveyed in a national poll saying they’ve never heard of the term “litigation funding.” , revealed the Insurance Research Council (IRC). month.

“Most of the concerns about third-party litigation funding stem from the opaque nature of industry practices, particularly the lack of disclosure about whether outside funding is involved in any given case,” the report states. of Triple-I, What Is Third- Party Litigation Funding and How Does It Affect Insurance Pricing and Affordability?. “Few U.S. states or territories require attorneys or their clients to disclose TPLF agreements to the opposing party.”

Lack of transparency about the funders of a lawsuit has the potential to lengthen the length of the lawsuit and increase legal and settlement costs for insurers, the Triple-I report says. Indeed, more than half of lawyers (55%) have ethical concerns about using litigation funders, the Triple-I report adds, citing a September 2021 Bloomberg Law survey.

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

Social inflation, the term used to describe how insurers’ claims costs can outpace general economic inflation, increased claims payments for commercial auto insurance liability alone by more than $20 billion between 2010 and 2019, a paper published jointly this year by Triple-I and the Casualty Actuarial Society Estimate. Costly financial jury awards and reversals of the state’s tort reform law have contributed to this trend, according to this document.

“Although the effects of the TPLF, like other components of social inflation, remain difficult for insurers to quantify, understanding the risks remains crucial. Disclosure of the TPLF’s involvement in legal action can go a long way to fairness, cost mitigation and value for both sides of the litigation table,” Triple-I’s just-released report states.

RELATED LINKS:

Blogs: A piecemeal approach to transparency in litigation funding (https://www.iii.org/insuranceindustryblog/a-piecemeal-approach-toward-transparency-in-litigation-finance/)

Litigation Funding Law found-lacking in Transparency Department (https://www.iii.org/insuranceindustryblog/litigation-funding-law-found-lacking-in-transparency-department/)

Video: Social inflation: how does it affect you and what drives it? (https://www.youtube.com/watch?v=U_EluOx06zI)

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REPORT: https://www.iii.org/sites/default/files/docs/pdf/triple_i_third_party_litigation_wp_07272022.pdf

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Original text here: https://www.iii.org/press-release/triple-i-investors-fund-lawsuits-without-disclosing-their-role-072722

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