A report issued by consulting firm Sedgwick on May 31 found that the practice of third-party litigation funding (TPLF) continues to grow, contributing to social inflation and raising concerns about foreign influence in the judicial system.
According to the report, third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021. TPLF leads to a larger volume of "frivolous lawsuits or those lacking serious merits," since plaintiffs are free from the financial risk of bringing meritless lawsuits and can pursue "lengthy and expensive litigation" rather than choosing to settle. Excessive litigation creates a hidden "tort tax" that costs every American household $3,621 annually.
A survey conducted by The Harris Poll found that 65% of respondents were not aware of "the impact that plaintiffs' bar tactics have on their household costs," while 59% of respondents were not familiar with the practice of TPLF. According to the American Property Casualty Insurance Association, 88% of respondents said there should be transparency around all parties with financial stakes in a lawsuit.
Legislators have raised concerns about foreign influence in the US judicial system through TPLF, according to the report. Sanctioned entities can gain access to intellectual property that would otherwise be sealed in court records and can exert influence over court cases.
Florida lawmakers introduced legislation addressing TPLF last session, but the measure stalled, Insurance Business reported. HB 1179 and SB 1276 would have required disclosure surrounding TPLF and prohibited third-party financiers from making decisions such as selecting witnesses and appointing counsel. State Rep. Toby Overdorf, who authored HB 1179, said he would introduce the measure again next session. TPLF is a popular practice in Florida commercial litigation, as well as property and personal injury claims. Mark Friedlander of the Insurance Information Institute said he wasn’t surprised that Florida’s legislation targeting the practice died out. "Members of the trial bar who sit in the Florida House succeeded in derailing this piece of legislation, which would have been very beneficial to Florida consumers and businesses," Friedlander said.
Sedgwick utilizes proprietary technology and industry data to provide insights and business solutions, according to the company’s website.