Uncovering the Dark Side of Litigation Funding: A Call for Greater Transparency

The Growing Concern Over Litigation Funding

Litigation funding, where third-party investors finance lawsuits in exchange for a share of the settlement, has been a growing concern due to its potential to inflate insurance costs and introduce extraneous motives into the judicial process. This practice, once widely prohibited in the United States, has seen a resurgence as bans have been eroded over the decades. According to Swiss Re, the global litigation funding industry is now worth $17 billion, with some estimates placing it as high as $39 billion.

The Need for Transparency

Despite its growth, the exact size and impact of the litigation funding industry remain unclear due to a lack of transparency. In most cases, plaintiffs' attorneys are not required to disclose the involvement of third-party funders, making it difficult for courts and defendants to understand the true interests at play. This opacity can lead to prolonged litigation and discourage amicable settlements, ultimately benefiting only the funders and plaintiff attorneys.

Progress Towards Transparency

There have been some efforts to bring transparency to litigation funding, such as the U.S. District Court for the District of New Jersey amending its rules to require disclosures about third-party funding. However, these efforts have been piecemeal and insufficient. The recently signed Illinois legislation, while a step forward, has been criticized for lacking regulatory safeguards, particularly concerning the interest rates that can be charged to plaintiffs. The American Property Casualty Insurance Association (APCIA) has highlighted the potential for cumulative interest rates to reach as high as 126 percent, which could be detrimental to consumers.

For readers, it is crucial to stay informed about the developments in litigation funding and advocate for greater transparency in the judicial process. Understanding the potential risks and implications of third-party funding can help in making more informed decisions about legal actions and insurance policies.