Regulation watch: Unpicking the impact of third-party litigation funding on organisations

It is no secret that legal system abuse continues to have a crippling effect on many businesses and industries across the United States.

Nuclear verdicts drive up expenses across the board including significant increases to insurance premiums and deductibles. As these nuclear verdicts persist, businesses are finding it more challenging to get the amount of insurance they need.

If damages awarded exceed policy limits, companies could end up covering the difference out of pocket, which can put a real strain on finances. Ultimately and unsurprisingly, these increased costs will trickle down to consumers, resulting in higher prices for goods and services, which is never ideal.

FUNDERS IN CONTROL

Fueling the fires set by nuclear verdicts is third-party litigation funding (TPLF). TPLF allows plaintiffs to pursue lawsuits they might not have been able to afford otherwise. This practice has contributed to the noticeable increase in the number of lawsuits companies are facing.

With the financial backing of third-party funders, plaintiffs can engage in longer legal battles, shifting the dynamics during settlement and negotiations.

TPLF has led to higher settlement demands and jury verdicts, which ultimately drives up legal costs for businesses. Additionally, it has been discovered that in some circumstances funders are controlling litigation to the point where plaintiffs are unable to settle a case (even though they want to) because the funder says, “no.”

In other instances, TPLF has been found prevalent in patent litigation, giving funders/investors access to intellectual property during the discovery process.

THE IMPACT ON RISK MANAGERS

TPLF and its connection to nuclear verdicts is clear and is impacting several lines of insurance, especially Commercial General Liability, Product Liability, and Commercial Auto.

RIMS, a professional association comprising approximately 10,000 risk management professionals and insurance leaders with its largest concentration of membership in the United States, is hearing from its memberships that there is a rise in claims, and the costs associated with discovery are skyrocketing.

Insurers are having to adjust their product offerings, including limiting the coverage they provide or increasing prices. In some cases, insurers are even stepping back from certain lines of coverage altogether, leaving some businesses facing higher insurance costs, higher deductibles, and forcing retention.

In the worst scenarios, some organisations are left struggling to find coverage at all. 

Rep. Darrell Issa (R-CA) recently re-introduced bill “The Litigation Transparency Act of 2025” that attempts to put roadblocks in place to slow down the success of third-party litigation funders and, subsequently, the success of nuclear verdicts.

TRANSPARENCY IS NEEDED

RIMS has made addressing TPLF one of its top legislative priorities for 2025. Specifically, RIMS Public Policy Committee is calling for more transparency regarding such funding, and for Congressional leaders to act against foreign third-party entities from financially backing civil litigation.

Additionally, RIMS position on TPLF suggests that litigation funding should be disclosed in litigation, so that the actual parties to a given court case are known to everyone involved.

TPLF will be at the center of the education program at RIMS Legislative Summit scheduled for March 19-20 in Washington, DC. The two-day event gives RIMS members the opportunity to meet with Congressional leaders and their offices to share risk professionals’ perspective on critical issues like TPLF and to offer those elected officials RIMS support, resources, and expertise to spur legislative action.

Authored by: RIMS public policy committee chair Lynn Haley Pilarski, JD, ARM, CPCU