Understanding Third-Party Litigation Funding: Impacts for Insurers
Third-party litigation funding (TPLF) is rapidly transforming the litigation landscape, posing new challenges and opportunities for insurance professionals.
This financial strategy involves external investors, such as hedge funds or litigation finance firms, providing capital to plaintiffs or their attorneys in exchange for a portion of any future settlement or verdict. For insurers, TPLF can dramatically shift case dynamics by enabling plaintiffs to pursue prolonged litigation, backed by additional financial resources for medical treatments and expert witnesses. As a result, settlement demands may increase, complicating insurers' risk assessment and cost management.
Impact on Litigation Dynamics
Investors in TPLF often target cases and jurisdictions promising high returns. This investment helps plaintiffs' attorneys litigate more assertively, avoiding premature settlements and potentially increasing verdicts. With the global market for litigation finance projected to grow from approximately $19 billion in 2024 to nearly $34 billion by 2032, according to PW Consulting, the insurance industry must be prepared for these funding arrangements to become more common across a wider variety of cases.
Strategic Implications for Insurers
For insurers, managing the complexities introduced by TPLF requires proactive strategies from the outset of a claim. Engaging in targeted discovery and deposition practices aligned with local court precedents is crucial. Insurers should also address the potential for third-party financing during pretrial conferences, leveraging federal disclosure rules and local orders to request details on funder involvement, settlement authority, and any connections to treating providers or experts.
Understanding the nuances of these financial relationships can better position insurers to anticipate potential impacts on claims outcomes and legal strategies.
Challenges of Regulatory Variability
Court opinions remain divided on how deeply discovery can penetrate funding arrangements. While some courts mandate disclosure of funding-related agreements and payment records—viewing them as potential sources of bias—others limit such discovery unless a clear link to the case's claims or defenses is evident. Targeted discovery requests that emphasize bias, damage calculations, or settlement control are generally more successful than broad demands for all funding documents.
Liens and Legal Ramifications
One particular concern for insurers is the issue of lien rights asserted by funders, usually governed by state law. These liens typically rank alongside those from plaintiffs' attorneys, medical providers, and subrogation claims from other insurers. Insurers must remain vigilant regarding state statutes that affect funders’ liens, ensuring early awareness of these claims to mitigate future disputes.
| Aspect | Considerations | Actions |
|---|---|---|
| Discovery | Varied court opinions on funder disclosure | Target requests emphasizing bias and settlement control |
| Funding Growth | Market projected to nearly double by 2032 | Proactive inquiry at claim initiation |
| Lien Rights | State laws govern funders' lien rights | Early detection and legal planning |
Navigating the Future
As regulatory attempts to address litigation funding grow, variability and uncertainty continue across jurisdictions. Insurers must stay informed about these changes, adapting strategies accordingly to manage the evolving legal risks associated with TPLF. A comprehensive understanding of these financial dynamics will be integral to successfully navigating the complex landscape of litigation funding within the insurance sector.