A May 31 report from research and consulting firm Sedgwick found that third-party litigation funding (TPLF) contributes to social inflation, driving up the cost of insurance, while also raising concerns about national security risks and ethical implications.
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 contributes to social inflation, meaning the cost of insurance claims is outpacing general economic inflation, driving insurance costs up for policyholders. Excessive litigation creates a hidden "tort tax" that costs every American household $3,621 annually. A survey reported by the American Property Casualty Insurance Association 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. Additionally, 88% of respondents said there should be transparency around all parties with financial stakes in a lawsuit.
The report also highlights additional risks associated with TPLF, including the potential for involvement by foreign and sanctioned entities. The practice creates a loophole through which sanctioned entities can access intellectual property that would otherwise be sealed in court records. Foreign entities can also influence the US judicial system by funding lawsuits.
States including Indiana and Montana have enacted laws regulating and requiring transparency around TPLF, according to the report. Georgia is one of several states that has proposed legislation regarding TPLF.
Georgia Attorney General Chris Carr was one of fourteen state attorneys general who sent a letter in December 2022 urging US Attorney General Merrick Garland and the US Department of Justice to address the issue of TPLF, according to the Office of the Georgia Attorney General. "Ensuring that our justice system remains protected from foreign interference is of paramount importance, and we are calling on the DOJ to address this security concern immediately," Carr said. "By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests."
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