Insurance executive and counsels joined in with those from more than 200 companies that submitted a letter to a federal court rules committee urging the development of a third-party litigation funding (TPLF) disclosure requirement.
According to a group called the Lawyers for Civil Justice, the letter was submitted Sept. 14 to the Advisory Committee on Civil Rules, part of a long process in making federal rules of practice and procedure for litigation in federal courts. The committee meets Oct. 21.
LCJ said the letter endorses a rule it and the U.S. Chamber Institute for Legal Reform proposed to the committee earlier this year to require the disclose of any funder with financial interest in the litigation, and the funding agreement.
Insurers on the list of signers include some of the industry’s largest – Allstate, AIG, Chubb, State Farm, Liberty Mutual, Nationwide, Travelers, AXA XL, FM, and USAA – as well as Alfa, Amica, Arch, Church Mutual, Cincinnati, CNA, Erie, Grange, Great American, Hanover, Hiscox, Intact, Markel, Munich Re, Sentry, Selective, and Zurich North America.
“After over a decade of consideration, it is time for the Advisory Committee to draft a straightforward rule requiring the disclosure of nonparty financial intere
sts in cases,” said Alex Dahl, LCJ’s general counsel, in a statement. “A broad spectrum of business leaders agree that nonparty financial stakes in litigation should be disclo
sed. A rule requiring TPLF disclosure would be consistent with the fundamental principle of transparency that is deeply rooted in our legal system and is critical to courts and litigants who are trying to manage and settle their cases.”
Other companies who signed include heavy-hitters such as Anthropic, OpenAI, Microsoft, Meta, Target, Amazon, Walmart, Ford, Toyota, and Uber.
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In the letter, LCJ said court rules favor the disclosure of those with financial interests, including insurers, in litigation.
“Given the [rules’] emphasis on transparency about financial interests in litigation, the absence of a TPLF disclosure requirement is inexplicable. Contracts for liti
gation funding directly or indirectly give nonparty funders a share of judgments and settlements and provide a basis for influencing or controlling litigation and settlement d
ecisions,” LCJ wrote, adding that its analysis of known TPLF contracts found these nonparties often have as much influence over a case as named parties.
LCJ said numerous courts, states, and other rulemaking bodies have adopted, or are considering, TPLF disclosure requirements. In addition, federal lawmakers have advanced proposals.
North Carolina recently became the first state to pass an outright ban on TPLF.
The insurance industry has routinely pointed to litigation funding – investments in lawsuits in exchange for a percentage of a settlement or judgment – as a big reason for a
rapid increase in litigation costs. The practice is typically afforded confidentiality protection in many cases, making it difficult to gauge its true influence.
Last year an insurance industry conference last year, Gareth Kennedy, principal of insurance and actuarial advisory service for EY, said the firm found the average cost for a commercial claim has gone up 10% to 11% per year since
2017. He said the research concluded that over the next five years TPLF will cost the insurance industry up to $50 billion in direct and indirect costs.
