Bob Passmore, the vice president of auto and claims policy for the American Property Casualty Insurance Association (APCIA), stated in an August 9 statement to Federal Newswire that third-party litigation funding (TPLF) creates a larger volume of lawsuits and leads to outsized verdicts.
"Third party litigation funding is a private investment from an otherwise uninterested party betting on the outcome of litigation for prospective profit from a percentage of the settlement or verdict," said Passmore. "By its very nature, TPLF increases the volume and cost of litigation. This tactic turns the judicial system into an investment market. It also creates a disconnect in what ought to be fair and reasonable compensation for a legitimate loss."
According to the National Association of Insurance Commissioners, TPLF is having an "outsized effect" on social inflation. The practice results in higher premium costs for all insurance policyholders.
The Insurance Information Institute (III) issued a report calling for action to address the lack of transparency surrounding TPLF. According to the report, TPLF has contributed to social inflation by increasing the length of time involved in litigation, which makes insurance coverage more costly for all policyholders. The report said more transparency and accountability should be required for cases involving TPLF.
California Congressman Darrell Issa, Chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, introduced draft legislation in July that would require the disclosure of TPLF arrangements in civil lawsuits, according to a press release. The legislation is titled the Litigation Transparency Act of 2024. "This legislation is a breakthrough measure that will target serious abuses in our litigation system and achieve long-overdue transparency," said Issa. "If a third-party investor is financing a lawsuit in federal court, it should be disclosed at the onset of the case. Awareness by all parties will help ensure fair and equal treatment by the justice system and deter bad actors from exploiting our courts."
A national poll released by the U.S. Chamber of Commerce Institute for Legal Reform (ILR) last year found that 79% of respondents support transparency and disclosure in TPLF, according to ILR. The poll found bipartisan support for requiring the disclosure of TPLF agreements at the onset of cases.
Passmore is an advisory board member of the Insurance Research Council and a board member for the Insurance Institute for Highway Safety, according to LinkedIn. He worked at Liberty Mutual Insurance before joining APCIA.
