When it comes to lawsuits, a new market is growing to assist finance consumer and commercial litigation.
Litigation funding companies act as third parties to finance consumer and commercial litigation through non-recourse loans or by accepting legal assets as collateral, according to the Swiss Re Institute, which researches and assesses reinsurance risk. Swiss Re says LFCs back various kinds of commercial and consumer claims in relation to – amongst others – trucking accidents, bodily injury, product liability mass tort, and medical liability, using the focus on the consumer side being personal injury cases.
While consumers will still a lawyer to consider their case to litigation funders for consideration, Forbes reports getting the funds means both you and your attorney may no longer have to confront insurance companies alone. Obviously, some lawyers will prefer to use their very own resources instead.
Forbes reports the litigation funding industry – centered within the U.S. and backed by Wall Street hedge funds – keeps growing.
Not surprisingly, some are from the use of litigation funds. American Tort Reform Association’s Bailey Aragorn told Forbes: “Litigation funding inflates settlements and cheapens our civil courts by allowing secret parties to have a stake in litigation.” The association is a nationwide network of state-based legal reform coalition organizations.
In June, while commending the U.S. District Court for the District of recent Jersey on its adoption of the rule to want parties involved with litigation to disclose information and financial interest of non-parties, The American Property Casualty Insurance Association said: “allowing investors to show the civil justice system right into a profit-centered commodities marketplace is egregious.”
“Third-party litigation financing is surging, with more than $13 billion of capital invested globally. This will concern everyone, particularly where that financing occurs from public view and oversight, designed with rate of return in mind instead of justice and fairness.”
Along with Nj, the Wisconsin and West Virginia legislatures along with the U.S. District Court for the Northern District of California require disclosure of litigation funding agreements. State courts in Colorado and North Carolina have figured litigation funding can violate usury laws, according to Swiss Re.
But Forbes cautions consumers to use litigation funding once asking questions about the funder’s reputation and if the funder may have every other role in the case on top of providing money. For example, funder American Legal Finance Association has a code that stops its members from interfering or taking part in their client's litigation. It’s also important to ask upfront exactly what the funder’s fee is, which may be negotiated along with the interest rate, and to fully understand the contract before signing it.
Consumer advocates, including the Center for Economic & Social Justice and also the Consumer Federation of the usa, see litigation funders like a “welcome ally in the battle from the trillion-dollar insurance industry,” based on Forbes.
Third-party litigation funding investment rose 16% globally last year to $17 billion, based on a Swiss Re Institute December report. Swiss Re said hello believes TPLF could have “possibly damaging economic and ethical consequences.”
“We have seen TPLF like a contributor to social inflation in america, by incentivising litigants to initiate and prolong lawsuits. Higher claims costs increase insurance premiums, can help to eliminate the supply of liability cover, and lead to higher uninsured legal liability risks for all of us businesses. These costs are ultimately paid by consumers.”
After the seventh consecutive year of underwriting losses, insurers are increasing premium rates, limiting policy coverages, and in some cases exiting the market altogether, according to Swiss Re.
