On October 7, Rep. Darrell Issa (CA-48) and Rep. Scott Fitzgerald (WI-5) introduced the Litigation Transparency Act of 2024, a bill aimed at reforming third-party litigation funding (TPLF) by mandating the disclosure of financial backers in civil lawsuits. This legislation directly addresses the growing concern that undisclosed financiers, including hedge funds and foreign entities, are driving lawsuits that place higher burdens on small businesses and large industries alike.
In recent years, businesses have increasingly been targeted by TPLF-backed lawsuits, with third-party investors funding claims in hopes of securing significant financial returns. This practice has inflated legal costs for defendants and has contributed to a litigious environment that impedes innovation and drives up operational expenses.
A report by consulting firm Sedgwick, released on May 31, found that third-party litigation funding (TPLF) is contributing to social inflation, where insurance claim costs rise faster than overall inflation. In 2022, third-party financiers invested over $3.2 billion in lawsuits, a 16% increase from 2021. TPLF is also driving larger verdicts, another factor in social inflation. However, a Swiss Re study found that plaintiffs receive 12% less compensation when third-party financiers are involved.
Under the proposed legislation, any financial stakeholders in litigation would need to be disclosed, providing transparency and allowing defendants to better defend themselves against opportunistic legal actions.
"Our legislation targets serious and continuing abuses in our litigation system and achieves a level of transparency that people deserve, and our standard of law requires," said Rep. Issa. "We believe that if a third-party investor is financing a lawsuit in federal court, it should be disclosed rather than hidden from the world and left absent from the facts of a case. When we achieve a lasting measure of awareness by all parties, it will advance fair and equal treatment by the justice system and deter bad actors from exploiting our courts."
"These commonsense disclosure laws should similarly be required in federal courts, where the stakes can be higher. I’m proud to join Congressman Issa in bringing needed transparency to our courtrooms." Rep. Fitzgerald Added.
Nationwide, the cost of car insurance has risen 46.2% since January 2020, according to the Wall Street Journal. In California, homeowners insurance rates have seen some of the steepest increases out of any state in the country, rising 48.4% since 2019.
A Swiss RE report highlights that in 2023, there were 27 court cases in the U.S. awarded over $100 million each. These significant verdicts contribute to rising insurance costs and reflect the trend of "very high verdicts have been fueled by trial lawyers’ increased use of psychology-based strategies, digital media advertising and litigation funding."
