Indiana has become the latest state to require disclosure of third-party litigation funding in civil lawsuits.
The legislation, signed into law by Gov. Eric Holcomb on April 20, requires each party to a civil suit and each insurer that has a duty to defend a party in court to be notified of any litigation funding agreement before it begins. the case.
The US Government Accountability Office. defines third-party litigation funding as “an agreement in which a funder who is not a party to the lawsuit agrees to help finance the lawsuit.” Billion-dollar global investment firms have made third-party litigation funding their sole or primary business and are experiencing strong growth.
As the market lacks transparency, estimates of its size may vary but, according to SwissRe, more than half of the $17 billion invested in litigation funding globally in 2020 was deployed in the United States. Swiss Re estimates the market will reach $30 billion by 2028. Meanwhile, the affordability of insurance coverage, especially for commercial auto products, has been threatened by increases in litigation and claims costs.
Several states have preceded Indiana in seeking to increase transparency around third-party litigation funding. In 2018, New York enacted a law that added section 489 to New York Judicial Law. This law mandates the disclosure of litigation funding agreements in class action lawsuits and certain aggregate settlement cases. In the same year, Wisconsin instituted a statutory provision require disclosure of litigation funding agreements. West Virginia did the same. in 2019.
In 2021, the US District Court for the District of New Jersey changed their rules to require third-party litigation funding disclosures in court cases. The Northern District of California imposed a similar rule in 2017 for district-wide class, mass, and collective actions.
In 2022, Illinois passed the Consumer Legal Financing Act (SB 1099), which implemented various statutory provisions regulating aspects of third-party litigation funding, but does not address the disclosure of these agreements or information about the existence of a funding agreement to defendants as part of claim litigation.
Litigation funding not only increases costs, but introduces motives beyond achieving fair results in the judicial process. This is why the practice was once widely banned in the United States. As these prohibitions have eroded in recent decades, litigation funding has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they could earn in a settlement. In fact, it can encourage longer litigation to the detriment of everyone involved except the funders and plaintiff attorneys.
The National Association of Mutual Insurance Companies (NAMIC) applauded Indiana’s play.
“Litigation funding is a multi-billion dollar industry that for years has increased the length and cost of civil cases,” said Neil Alldredge, NAMIC President and CEO. “While there is much more to do to address this problem, this law represents important progress.”
Disclosing third-party litigation funding prior to the commencement of a lawsuit “will help prevent opportunistic investors from promoting return on investment on client interests and diverting client value away from policyholders, claimants and insurers.” Alldredge said.
Learn more:
What is third-party litigation financing and how does it affect the price and affordability of insurance?
US study on third-party litigation funding cites market growth, poor transparency
IRC Study: The Public Perceives the Impact of Litigation on Auto Insurance Claims
Transparency Department finds lack of litigation financing law
A fragmented approach to transparency in litigation funding
Lawyers Group Approves Best Practices to Guide Litigation Funding