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Third Party Litigation Funding Increases Awards and Insurance Premiums

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March 7, 2022

According to the insurance giant Swiss Re, third-party litigation funding is a booming business with inflationary effects on jury awards and insurance premiums, and higher uninsured legal liability risks for U.S. businesses. In 2020, there was a global investment of an estimated $17 billion in litigation funding, more than half in the U.S. Payoffs to the funder are generally structured as a cut of the award, so litigants are incentivized to initiate and prolong lawsuits. Legal verdicts have been driven larger and larger, and costs have been skewed higher too. In 2016, plaintiffs’ legal costs made up 26 percent of total litigation costs. Now, according to Swiss Re, it’s up to 38 percent, a rise accounted for by the funders’ share. Swiss Re claims that companies are increasingly accepting legal funding to monetize legal claims and manage legal risk, but money spent on litigation is immediately expensed, reducing operating profits. A bill –  the Litigation Funding Transparency Act – has been introduced in Congress, which could reduce the costs associated with third-party funding, and legal expense insurance can act as a cushion.

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