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Triple-I blog | A gradual approach to transparency in litigation financing



A U.S. District Judge in Delaware made his courtroom the latest jurisdiction to require litigants to disclose whether third-party investors have a stake in litigation before him.

While this is a step towards greater transparency in the financing of third-party litigation, the standing order of Chief Justice Colm F. Connolly only affects cases in his court. The other three district court judges in Delaware have not issued similar decrees. But the order was placed in an extremely influential district. More than half of the listed U.S. companies are incorporated in Delaware, and state laws often regulate contracts between companies.

A thriving global industry

The financing of lawsuits by international hedge funds and other financial third parties ̵

1; with no share in the result other than part of the settlement – has become a global $ 17 billion industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even bigger, with $ 39 billion globally, according to Bloomberg.

Funding for third-party litigation was once generally prohibited. As bans have eroded in recent decades, they have grown, spread and become a contributing factor to “social inflation”: increased insurance payments and loss ratios beyond what can be explained by economic inflation alone.

Efforts for transparency

Some progress towards increased transparency has been made in recent years. Last year, the U.S. District Court for the District of New Jersey changed its rules to require disclosure of the financing of third-party disputes in court cases. The Northern District of California introduced a similar rule in 2017 for class, mass, and collective action throughout the district. Wisconsin passed a law requiring disclosure of third-party financing agreements in 2018. West Virginia followed after 2019.

At the federal level, the law on the legal financing of transparency was introduced and referred to the Senate Committee on Legal Affairs in October 2021.

Panelists at the Triple-I Joint Industry Forum in December 2021 agreed on the importance of requiring disclosure of litigation funding. Insurance groups and the U.S. Chamber of Commerce say litigation financing needs more rules to prevent abuse of the justice system and to protect consumers, who often pay exorbitant interest rates on money they borrow to pay legal costs.

“By its very nature, third-party litigation financing promotes speculative litigation and increases costs for all,” said Stef Zielezienski, vice president and chief legal officer of the American Property Casualty Insurance Association, in a press release on the Delaware order. “In the worst case, external investment in litigation financing, following a successful ruling, creates incentives to extend litigation.”

The Delaware judge’s decision requires, in addition to disclosing the name and address of a third party financier, that the parties to each case before his bench must also disclose whether the financier’s approval is necessary for conciliation decisions and, if so, the terms and conditions of that approval.

While progress like this may be small, they are teaming up in the fight to make disclosure of third-party litigation a priority in states and courts across the country.

Read more:

Social inflation: what it is and why it matters

Triple-I, CAS Quantify the impact of social inflation on commercial vehicles

What is social inflation and what can insurance companies do about it?

IRC study: Social inflation is real and it hurts consumers, companies


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