SUPPORT TORT REFORM & TRANSPARENCY FOR THIRD-PARTY LITIGATION FUNDING
BACKGROUND
Third-Party Litigation Funding (TPLF) is the practice in which an outside group, corporation, individual, or foreign entity, not connected to the plaintiff, finances a lawsuit in exchange for a portion of any monetary recovery.
In the property/casualty industry, there is an exploitation of the civil litigation process to extract punitive settlements that exceed the actual value of claims due to the lack of tort reform at the state level. According to a recent study from Ernst & Young, insurers are spending more than $23 billion a year on defense and cost containment within the claims process and $27,000 in indemnity per injured party in third-party bodily injury claims, which represents an 8.3% increase since 2023 and a 38% increase since 2020. Additionally, according to the U.S. Chamber of Commerce’s Institute for Legal Reform, only 53 cents of every dollar paid in the tort system makes its way to claimants, while the rest goes to litigation costs and other expenses.
THE ISSUES
Currently, there are no federal requirements for legal counsel to disclose any third-party funding. As a result, insurance companies are unable to accurately calculate legal risk and associated cost. Over the past decade, the litigation funding industry has exploded. The median award for general liability verdicts over $1 million increased from $8.2 million in 2010 to $10.3 million in 2019—almost 26%.2 The average size of a verdict in trucking accident litigation soared from around $2.3 million in 2010 to $22.2 million in 2018—nearly 850%.3 Consequently, TPLF contributes to the inflation of insurance and leaves policyholders to cover the increased costs.
The Council has joined an industry-wide effort to call attention to the abuse of the U.S. court system and the lack of tort reform efforts in the states. These efforts arm agents and brokers with information and data points on the cost of legal system abuse for their clients and provide targeted information on states considering legislation that would be helpful or harmful to the industry. Several states are currently considering tort reform legislation, but it is unclear which ones have the highest likelihood of passage given the heavy opposition from the trial bar. The insurance industry coalition is currently developing a state-by-state plan and accompanying messaging strategies.
On third-party litigation funding, The Council is working with industry partners on legislation to address TPLF abuse. The Council nearly secured provisions to address TPLF, championed by Senator Tillis (R-NC), in the One Big Beautiful Bill Act, but these provisions did not make it in the final bill.
Despite this setback, The Council continues advancing TPLF reform through two key bills:
- The Litigation Transparency Act of 2025 (H.R. 1109), which would require disclosure of TPLF agreements in federal civil litigation.
- The Tackling Predatory Litigation Funding Act (S. 1821 / H.R. 3512), which would close a tax loophole allowing litigation funders to pay preferential capital gains tax rates on TPLF investments. TPLF returns would instead be taxed at the highest ordinary income tax rate plus an additional 3.8 percent.
OUR POSITION
The Council is committed to actively participating in state and federal efforts aimed at combatting legal system abuse and advancing tort reform. The Council supports increasing TPLF transparency to help curb rising litigation costs, closing tax loopholes for TPLF that will lower the incentives to investment in lawsuits, and continues to educate lawmakers about how these practices impact insurance markets.
See additional information on TPLF from our coalition partners here.
