Third-party entities, such as hedge funds, are increasingly providing financing for lawsuits in exchange for a share of the settlement. This practice is driving up insurance costs, disproportionately affecting low-income policyholders.
An opinion piece penned by former U.S. House Judiciary Committee Chairmen Bob Goodlatte and Lamar Smith, and published by MyRGV, argues that the practice of third-party litigation funding (TPLF) has significantly increased in recent years. They assert that defendants and judges are often unaware that plaintiffs in a case are receiving external funding due to a lack of disclosure requirements. The involvement of third parties in lawsuits can result in extended litigation times and larger settlements. Goodlatte and Smith stated that the influence of third-party funders is not theoretical; the chief investment officer of the U.S. division of litigation finance firm IMF Bentham Ltd., reportedly told The Wall Street Journal, "We make it harder and more expensive to settle cases."
According to a December 2023 legal alert from law firm Conroy Simberg, TPLF constitutes a form of "legal system abuse" and inflates insurance costs for policyholders, negatively affecting businesses as well as consumers. Conroy Simberg noted that critics of TPLF have argued that the practice can prolong litigation, prioritize profits over justice, lead to inflated damages, and influence lawsuit outcomes. "Having more fingers in the pie can lead to going after a bigger pie," said the law firm.
The Northern California Record previously reported that rising insurance costs due to excessive litigation are particularly impacting low-income Californians who are already dealing with high inflation. Car insurance costs rose by 24% last year and are projected to increase another 7% in 2024. These escalating costs are causing low-income California families to struggle with affording basic expenses.
Goodlatte represented Virginia’s 6th Congressional District from 1993 to 2019, according to Ballotpedia. He served as chair of the U.S. House Judiciary Committee from 2013 until the end of his tenure in Congress. Before entering public office, Goodlatte worked as an attorney.
Smith represented Texas’s 21st Congressional District from 1987 to 2019, as per Ballotpedia. He chaired the U.S. House Judiciary Committee from 2011 to 2012 and was also a member of the U.S. House Committee on Homeland Security.