Florida recently passed broad legal system abuse reforms, in reaction to evidence that the state had become a magnet for litigation. (Free use image/ALM archives)
Legal system abuse by the plaintiffs' bar has been a pervasive and persistent problem for decades, in the process driving up costs associated with engaging in the U.S. judicial system ultimately borne by everyone, but particularly the business community and consumers.
The abusive practices are wide-ranging, and also impact insurance affordability and availability in states across the country.
It started with the growth in unchecked plaintiffs' bar advertising several decades ago, creating a platform for the plaintiffs' bar to foster the narrative that corporations, including insurers, were bad actors and that attorneys were there as "white knights" to help them navigate the court system. Over time, it has evolved into an expansion of litigation exposure by legislation and includes practices like insurance bad faith standards, time limited demands, assignment of benefits, third party litigation funding (TPLF), and use of medical liens and letters of protection.
Last year, Florida passed broad legal system abuse reforms, in reaction to evidence that the state had become a magnet for litigation. Other states, such as Montana, have enacted first-step reforms to address discrete practices such as the growth in TPLF, which turns our judicial system into an investment market where outsiders bet on litigation outcomes. These growing reforms are a positive step toward balancing the scales of justice and reducing frivolous lawsuits.
A recent survey commissioned by APCIA and Munich Re U.S. and conducted online by The Harris Poll among over 2,000 U.S. adults, reveals a majority (86%) of Americans agree that state and federal lawmakers should address abuses of the legal system, including undisclosed third party litigation funding and plaintiff lawyer advertising, to restore fairness and balance to the civil justice system. This year, APCIA will continue to advocate for more states to pursue similar reforms.
The growth in TPLF is particularly concerning, as it highlights the transformation of the judicial system, which is a branch of government, into an opportunity for otherwise non-interested investors (including unidentified foreign sovereign wealth funds) to profit from U.S. judicial outcomes. For example, TPLF practices, far from providing the supposed benefit of helping under-resourced plaintiffs bring meritorious cases, discourage amicable settlement of disputes and encourage aggressive and prolonged litigation. TPLF also redirects monetary damages awards — intended to compensate claimants for injury — away from the injured parties and towards unrelated funders and plaintiff attorneys. As a result, the focus of litigation is diverted from the best interests of impacted consumers towards funders and attorneys.
In the absence of disclosure requirements and other reasonable safeguards against TPLF abuses, the civil justice system is distorted from one designed to fairly resolve disputes into one that focuses on return on investment for unknown third-party investors whose only interest is profiting at the expense of those most in need of protection.
TPLF is growing rapidly. Westfleet Advisors, a litigation finance advisory firm, found investments in U.S. litigation financing now rising to $13.5 billion in 2022, with new capital commitments growing by nearly 16% year over year. Additionally, the leading financier of litigation has seen its assets increase 355% over the last several years, including the addition of nearly $1 billion at the end of 2018 by an unknown, foreign sovereign wealth fund.
Legal system abuse subverts the "truth-finding" and justice hallmarks of our judicial system in favor of promoting the courts as an investment market that benefits speculators. In turn, abusive practices add costs for every American family, individual and business that finds their way into insurance affordability, as well as the general costs of goods and services.
As a result, consumers may pay what the U.S Chamber Institute for Legal Reform (ILR) has called a "tort tax" for such everyday items as groceries and gas. According to the ILR, the total economic cost of the U.S. tort system in 2020 was $443 billion, or $3,621 per household, as a result of unnecessary and abusive litigation across the country that raises the costs of products and services. According to the APCIA and Munich Re US survey, only 35% of Americans are aware — and 65% are unaware — every household pays the "tort tax."
APCIA is working to engage the entire business community in a coalition effort to reduce and eliminate those abusive plaintiffs' bar practices that are adding unnecessary costs, delays, and clogging of the U.S. judicial system. This is not an isolated insurance concern, but, like most things, impact on insurance availability and affordability serves as a "canary in the coal mine."
This concern should resonate with businesses and drive reforms in the name of restoring balance in the judicial system, reorienting the system to its goal of seeking truth and justice, and reducing the adverse economic impact of a bloated and clogged court system. Common-sense reforms, including transparency and disclosure in third party litigation funding, are needed to help these worthwhile goals.
Stef Zielezienski is executive vice president and chief legal officer for the American Property Casualty Insurance Association (APCIA).
This article is published with permission from the author and the APCIA and may not be reproduced. Any opinions expressed here are the author's own.
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