In New York, some of the nation’s largest insurance companies are intensifying their critiques of litigation finance companies, despite the fact that many in the industry provide similar products to plaintiffs. Major insurers attribute their rising costs to outside funders who work alongside plaintiffs’ attorneys in significant tort cases—ranging from those involving talc and opioids to the herbicide Roundup. These companies claim that such financing inundates courts with lawsuits and escalates insurance premiums. Following a halt in Congressional efforts to implement a 40% tax on litigation funders, these insurers indicate they will continue to advocate for tighter regulations.
The backlash is not limited to those funding mass tort lawsuits; it extends to investors involved in a variety of commercial disputes, even where insurers already provide their own contingent risk policies. Ed Gehres, managing partner at Invenio LLP, highlights the contradiction in insurers’ positioning, noting that they are increasingly intertwined with the financialization of litigation.
Prominent insurance brokerage firms, including Marsh McLennan, Lockton, Willis Towers Watson, and Alliant, offer policies that mitigate contingent risks for litigants and law firms. These policies allow clients to access lower-cost capital from litigation funders. Some insurers directly finance these funders as well.
Major players like Liberty Mutual and Nationwide have joined lobbying efforts aimed at regulating the $16.1 billion litigation finance sector, as documented in public records. Executives from Chubb and Marsh McLennan reaffirmed their commitment to addressing this issue following the withdrawal of a tax provision from a comprehensive tax and spending bill recently signed by President Trump.
Daniela Raz, senior vice president at Marsh, stated that while they provide contingent risk policies, they refrain from collaborating with litigation funders. Raz, who has experience with litigation financing, emphasized that such insurance solutions allow plaintiffs and their lawyers to retain more proceeds than they might in traditional financing arrangements.
Contingent risk insurance poses a dilemma for insurers by complicating their messaging. While these products are frequently utilized in mergers and acquisitions, they are also relevant to various litigation finance activities. For instance, “work in progress” (WIP) insurance enables law firms to secure financing against their active case dockets, which can then be leveraged to secure loans from funders.
Contingent risk products primarily present issues within consumer litigation, where opposing parties often carry insurance coverage. In contrast, commercial litigation cases frequently involve claims such as antitrust or contract disputes, where defendants commonly lack insurance for such liabilities.
The litigation finance industry comprises two main categories: those funding commercial litigation and those providing loans to personal injury or mass tort firms against their case inventories. These funders sometimes operate across both segments, which further complicates the dialogue surrounding potential regulations.
Consumer legal funding, which involves providing loans directly to plaintiffs rather than their attorneys, has garnered criticism for its differing purposes. For example, funds are used for personal expenses rather than legal costs, complicating regulatory discussions. The proposal for taxation failed to differentiate among these categories.
Stef Zielezienski, an executive at the American Property Casualty Insurance Association, believes the various types of funding should be treated similarly under regulatory frameworks. He argues for a unified approach to the entire realm of litigation finance.
Despite the recent legislative setbacks, insurers are continuing to unveil new litigation-related policies, indicating a persistent concern that litigation finance drives costs upward. However, this concern appears less relevant to commercial disputes, where defendants typically do not carry liability coverage.
Although the litigation finance tax proposal has died in Congress, there is speculation that similar measures may be revived in the future. As President Trump has advocated for ongoing reconciliation as a legislative strategy, the conversation regarding the taxation of third-party litigation finance remains on the table.
This article was automatically written by Open AI, and the people, facts, circumstances, and story may be inaccurate. Any article can be requested for removal, retraction, or correction by writing an email to contact@publiclawlibrary.org.