Navigating the Evolving Landscape of Securities Class Actions and TPLF: Risks and Implications for Insurers

The Rise of Mega Settlements and Institutional Investors

An annual report from Cornerstone Research reveals that the median settlement amount in securities class actions increased by 11% in 2023, with nearly two-thirds of total settlement dollars exceeding $100 million. This trend underscores a significant shift in the landscape of securities litigation, where mega settlements are becoming more frequent and institutional investors are increasingly taking the lead as plaintiffs.

TPLF Market Dynamics and Their Impact on Litigation

Westfleet Advisors' research on third-party litigation funding (TPLF) indicates a strategic shift in how TPLF is utilized. Despite a 14% decrease in new capital commitments, the proportion of funds allocated to claim monetization rose to 21%. This shift, coupled with an increase in TPLF use by large law firms, suggests a potential weakening of the 'David vs Goliath' narrative, as TPLF may increasingly serve to extract profits rather than level the playing field.

Implications for Insurers and the Need for Transparency

The growing use of TPLF and the rise in securities class action settlements pose significant risks for insurers. These trends can lead to inflated litigation costs and prolonged legal battles, impacting the affordability and availability of insurance coverage. To mitigate these risks, insurers are increasingly relying on underwriting practices, policy exclusions, and setting appropriate reserves. However, there is a growing call for regulatory intervention to increase transparency in TPLF practices.

For readers, staying informed about these trends and understanding the implications for their insurance policies is crucial. Regularly reviewing coverage and consulting with insurance professionals can help ensure that policies adequately protect against emerging risks.