Indiana has become the latest state to require disclosure of third-party litigation in civil lawsuits.
The legislation — signed into law by Gov. Eric Holcomb on April 20 — requires each party to a civil proceeding and each insurer that has a duty to defend a party in court to be notified of any litigation funding agreements before the case begins.
The US Government Accountability Office defines third-party litigation funding as “an arrangement in which a funder that is not a party to the litigation agrees to help fund it.”
; Multi-billion dollar global investment firms have made third-party litigation funding their sole or primary business and are experiencing strong growth.Because the market lacks transparency, estimates of its size can vary, but according to Swiss Re, more than half of the $17 billion invested in litigation financing globally in 2020 was spent in the United States. Swiss Re estimates that the market will be as large as $30 billion by 2028. At the same time, affordable insurance coverage – particularly for commercial auto products – has been threatened by rising litigation and claims costs.
Several states have followed Indiana in trying to increase transparency around third-party litigation funding. In 2018, New York passed legislation that added Section 489 to the New York Judiciary Law. This law provides for the publication of class action litigation funding agreements and certain consolidated settlement cases. That same year, Wisconsin introduced a statutory provision requiring disclosure of litigation funding arrangements. West Virginia followed suit in 2019.
In 2021, the United States District Court for the District of New Jersey amended its rules to require disclosure of third-party litigation funding in cases before the court. The Northern District of California enacted a similar rule in 2017 for district-wide class, mass, and collective actions.
In 2022, Illinois enacted the Consumer Legal Funding Act (SB 1099), which implemented several statutory provisions governing aspects of third-party litigation funding, but it does not address disclosure of these arrangements or information about the existence of a funding arrangement to defendants. as part of litigation.
Litigation funding doesn’t just drive up costs—it introduces motives beyond achieving just outcomes to the legal process. This is why the practice was once widely banned in the United States. As these prohibitions have been eroded in recent decades, litigation financing has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they might otherwise receive in a settlement. In fact, it may encourage more protracted litigation to the detriment of everyone involved – except the financiers and the plaintiffs’ lawyers.
The National Association of Mutual Insurance Companies (NAMIC) applauded Indiana’s move.
“Litigation finance is a multi-billion dollar industry that for years has driven up the length and cost of civil litigation,” said Neil Alldredge, President and CEO of NAMIC. “While there is much more that needs to be done to address this issue, this law represents important progress.”
Disclosing third-party litigation funding before a lawsuit begins “will discourage opportunistic investors from promoting investment returns over clients’ interests and siphoning value from clients away from policyholders, claimants and insurers,” Alldredge said.
Read more:
What is third party financing and how does it affect insurance rates and affordability?
US Study of Third-Party Litigation Funding Cites Market Growth, Lack of Transparency
IRC Study: Public Perceives Impact of Litigation on Auto Insurance Claims
Litigation funding law found lacking in transparency department
A piecemeal approach to transparency in litigation funding
The Bar Association endorses best practices to guide litigation funding
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