Is Litigation Funding Responsible for Rising Insurance Settlements?
Many insurers claim that litigation funding is a major contributor to so-called ‘nuclear settlements’, which are large settlements and damages awards that are based on intangible factors. However, a new article interviewing industry experts suggests that there is less consensus on the topic than might be expected. An article by PropertyCasualty360, looks at the issue of rising insurance settlements and the associated rising cost of civil litigation, known as social inflation. Examining litigation funding’s ties to these increases, the author found that there were those who do see a link, such as John C.S Pierce who investigated a social inflation task force at the Defense Research Institute. Pierce argues that the presence of third-party funders and the huge amount of capital they bring, naturally increases costs overall, stating that as the funding industry grows ‘we will see more of these big verdicts and […] more big settlements.’ However, there are experts who disagree with this assessment, including Tom Baker, professor of law at the University of Pennsylvania, who argues that even if social inflation is real, ‘there is no solid evidence, and certainly no published, peer reviewed research, showing that litigation funding is the cause.’ Baker also criticized a publication by insurer Swiss Re, which claimed third-party funding had increased costs in commercial trucking litigation, but failed to note that lawyers in this area do not regularly engage litigation funders. Anthony Sebok, professor at Cardozo School of Law, goes even further and suggests that when looking at litigation funding and social inflation, ‘there are so many reasons to think that the two have nothing to do with each other’. Instead, Sebok argues that industry leaders should look to the wider socio-political conditions at play here, namely the rise in populism that will naturally lead to an environment which is increasingly hostile to corporate defendants.
