Global Reinsurer pins U.S. social inflation on third-party litigation funding

January 15, 2022

Third party litigation finance enabling harm towards the vulnerable
January 15, 2022

Global Reinsurer pins U.S. social inflation on third-party litigation funding

In a December 2021 report, reinsurance company Swiss Re designated third-party litigation finance (TPLF) as a major contributor to U.S. social inflation. The report defines TPLF as investors financing consumer or commercial litigation either through non-recourse loans (no repayment without a recovery) or by accepting legal assets as collateral. According to the report, more than half of the $17 billion invested in litigation funding globally in 2020 was used in the U.S., making the U.S. the center of the world’s TPLF industry.

Swiss Re attributes reduced insurability to TPLF. Funders tend to invest in multimillion-dollar claims and allow litigants to file and persist in long lawsuits. Rising legal awards make insurers’ claims costs go up, so they raise premiums and adjust coverages. Less available, affordable liability coverage can leave businesses with greater uninsured legal liability risks, and companies ultimately pass their increased costs on to consumers.

Per the report, the benefits of TPLF to consumers are dubious. Lengthy lawsuits incur higher legal expenses and compound interest on the litigation financing so that funders and lawyers receive a higher share of the recovery—57%, compared with an average of 45% in typical tort liability cases—than the plaintiff, who thus won’t see a higher award. Large funders gravitate toward commercial litigation with a high expectation of success, not “David and Goliath” cases that transform access to justice, and most commercial litigation settlements for TPLF cases go to large rather than small companies. Swiss Recalls the effect an “opaque, bottom-up wealth transfer from consumers to sophisticated investors and law firms.” The report further indicates that investor profit expectations can interfere with attorneys’ ethical obligations to their clients and that funding agreements, particularly those directly involving consumers, raise predatory lending concerns.

The report concludes that TPLF is an “expensive and blunt tool” to enable legal disputes that can be especially harmful to vulnerable individuals. Calling for enhanced consumer protection, pricing regulation, and transparency about TPLF involvement in a case, the report cites as favorable examples Federal district court requirements for disclosure of litigation funding contracts and state court determinations that litigation funding can violate usury laws.

Swiss Re notes some cost-effective, efficient alternatives to TPLF, such as legal aid and legal expense insurance, may provide better access to justice for those most in need. To say LevelEsq is on board with this last sentiment is an understatement. Our mission is to level the playing field by providing plaintiffs and their representatives with straightforward, transparent, and fair tools to enable them to fight for the justice they deserve. Visit to find out how our unique, innovative Lawsuit Cost Protection insurance and our fast and flexible Lawsuit Cost Financing set us apart from the TPLF described in Swiss Re’s report.

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