Sean Kevelighan, CEO of the Insurance Information Institute (III), stated that "there are multimillions of dark money investor dollars" fueling litigation that ultimately escalates insurance costs for consumers. This assertion was made in a press release dated Feb. 27.
"There are real costs behind what we all know and see plaguing our roads with promises of settlement dollars, as billboard attorneys are racking up fees, and consumers are found to be getting less and less," said Kevelighan. "The price of insurance is the effect, not the cause of risk, and there must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture. What's more, there are multimillions of dark money investor dollars entering into the fray to try and get their share. Some of these investors are sovereign funds, which may very well pose increased national security risks."
According to the same press release, the III recently published a report titled "Legal System Abuse - State of Risk." The report examines attorney practices that lead to an increased number of lawsuits, heightened litigation costs, and larger settlement payouts for defendants, along with "outsized monetary awards after jury verdicts." One such practice is third-party litigation funding (TPLF), where investors like hedge funds finance lawsuits in return for a portion of the settlement or jury award. Given that some class actions and major lawsuits necessitate significant investment in attorney and investigation costs, an industry of investors has emerged to help shoulder these costs in exchange for a share of any winnings. According to the III, few states have disclosure requirements in place for TPLF, which it characterizes as a "multi-billion-dollar global industry."
The U.S. Chamber of Commerce Institute for Legal Reform (ILR) also weighed in on this issue with its Dec. 2022 report warning about the national security implications of foreign TPLF. The ILR's report suggests that TPLF "is a multibillion-dollar global industry that allows hedge funds to secretly invest in lawsuits in exchange for a cut of any award or settlement." Without proper disclosure requirements around litigation financing, foreign governments could potentially influence lawsuits against American businesses, including those operating within sensitive industries such as defense.
In response to growing scrutiny surrounding foreign TPLF, lobbying firm Miller Strategies announced it would update disclosures for the International Legal Finance Association due to the omission of five foreign members from the association's records. This announcement was reported by Politico newsletter. Concerns regarding foreign funding have been amplified following revelations that at least one Chinese company had financed multiple lawsuits related to intellectual property.
According to its website, the III boasts a membership of more than 50 insurance companies. The association offers research reports, white papers, and other resources with the aim of enhancing understanding of the insurance industry. The III is affiliated with The Institutes Risk and Insurance Knowledge Group.