Trending Now
  • Sigma Funding Secures $35,000,000 Credit Facility, Bryant Park Capital Serves as Financial Advisor
Commercial

How Litigation Funding Can Benefit Insurers in Subrogation and Reinsurance Claims

February 27, 2020

How Litigation Funding Can Benefit Insurers in Subrogation and Reinsurance Claims

The business of Insurance is a complex one, full of costly legal pitfalls. This is especially true within two core components of the Insurance industry: subrogation and reinsurance. Fortunately, litigation funding provides an antidote to Insurance companies who may find themselves embroiled in legal turmoil stemming from either practice. As noted on IMF Bentham’s website, subrogation is the act of recoupment by an Insurance company of their payment to a policy holder. The Insurance company may be on the hook to the policy holder, but can attempt to recoup their policy payout by suing the allegedly liable party. So for example, if a homeowner declares property damage, the Insurance company will pay out the requisite amount as stated in the policy, but assuming a third party is liable for that property damage, the Insurance company may pursue legal action against the third party to recoup their payout. It goes without saying that subrogation is fraught with risk. The third party may be impecunious, therefore making collectability an issue. And there is always the risk that the litigation will go awry, despite the underlying merits. This is where litigation finance comes in. By its very nature, litigation finance mitigates risk, and in this instance allows the Insurance company to pursue meritorious subrogation claims. Similarly, funders can partner with contingency-fee law firms who take on subrogation claims from large Insurance providers on a portfolio basis, thus mitigating the law firm’s risk as well. So there are multiple avenues here where funding can be applied. Reinsurance involves a similar circumstance. An Insurance provider may take out reinsurance on the policy the company writes (that reinsurance may in turn be reinsured; and on and on…sort of like a ‘Russian Doll’ of insurance policies). The higher the number of reinsurances, the more likely a conflict over who is liable for the payout. Reinsurance litigation is essentially a breach of contract claim, except given the complexity, it is often decided by a judge, rather than a jury. As with subrogation, litigation finance provides certainty that legal costs will not encumber the plaintiff and ensure them access to justice. So for any Insurance company – or law firm with a portfolio of subrogation or reinsurance claims – litigation finance is a helpful tool worth considering.

Commercial

View All
Commercial Regulatory Issues

Congress Debates Litigation Funding Bill

By John Freund |

Republican lawmakers have renewed their push to rein in third-party litigation funding, with a House Judiciary Committee debate highlighting how politically charged the issue has become.

An article in The Daily Signal reports that members of the House Judiciary Committee clashed this week over legislation that would require disclosure of third-party litigation funding arrangements in federal courts. Supporters of the bill framed it as a transparency measure aimed at exposing the financial interests behind major lawsuits, while opponents warned that the proposal risks limiting access to justice and unfairly targeting a growing segment of the legal finance market.

During the committee debate, Republican lawmakers argued that outside investors are increasingly influencing litigation in ways that can distort outcomes and inflate settlement values. Several speakers characterized litigation funders as profit-driven actors operating in the shadows, asserting that judges and defendants deserve to know who stands to benefit financially from a case. Proponents also linked litigation funding to broader concerns about rising legal costs and what they describe as abusive litigation practices.

Democratic members pushed back, questioning whether the bill was designed to solve an actual problem or simply to deter plaintiffs from bringing legitimate claims. Critics of the proposal argued that disclosure requirements could chill funding for complex and expensive cases, particularly those involving individual plaintiffs or smaller businesses facing well-capitalized defendants. They also raised concerns about confidentiality and whether revealing funding arrangements could give defendants a tactical advantage.

The debate reflects a broader national conversation about the role of litigation finance in the civil justice system. While disclosure requirements have already been adopted in certain courts and jurisdictions, the proposed legislation would impose a uniform federal standard. Supporters say this consistency is overdue, while opponents argue it could undermine carefully negotiated funding structures that allow cases to proceed at all.

Commercial

APCIA Supports Federal Litigation Funding Disclosure Bill

By John Freund |

The insurance industry has intensified its campaign for greater scrutiny of third-party litigation funding, with one of its most influential trade groups backing new federal legislation aimed squarely at disclosure.

An article in Insurance Journal reports that the American Property Casualty Insurance Association has thrown its support behind a proposed federal bill that would require parties in civil litigation to disclose the existence of litigation funding agreements. The legislation, which is currently being considered by the House Judiciary Committee, would mandate that courts be informed when a third party has a financial stake in the outcome of a lawsuit. Proponents argue that this information is essential for judges to understand who stands behind a claim and whether outside financial interests may be influencing litigation strategy.

APCIA framed its endorsement around long-standing concerns about rising litigation costs and what insurers describe as “social inflation.” According to the group, undisclosed litigation funding arrangements can drive up claim severity, prolong disputes, and ultimately increase costs for insurers and policyholders alike. By requiring transparency, APCIA believes courts would be better positioned to manage conflicts of interest, assess discovery disputes, and evaluate settlement dynamics.

The association has been an active voice in the national debate over litigation finance for several years, often aligning with other insurance and business groups calling for disclosure regimes at both the state and federal level. APCIA leadership emphasized that the proposed legislation is not intended to ban or restrict litigation funding outright, but rather to ensure that judges and opposing parties have visibility into financial relationships that could bear on a case.

The bill would apply broadly in federal courts and could have significant implications for how funded cases are litigated, particularly in complex commercial disputes and class actions where third-party capital is more common. Insurers view federal action as a way to establish consistency across jurisdictions, rather than relying on a patchwork of state rules and local practices.

Commercial Regulatory Issues

Why Big Law Is Walking Away From Suits Against Governments

Elite global law firms are increasingly declining to pursue massive claims against sovereign states, even when potential recoveries run into the billions. The trend reflects a reassessment inside Big Law of the risk, cost, and strategic value of investor state and public law disputes that can take years to resolve and often carry significant political and reputational complications.

An article in Law.com International reports that top-tier firms which once dominated investor state arbitration and other government facing disputes are now far more selective about taking on such matters. Lawyers interviewed for the piece point to a combination of commercial pressure, client demands, and internal firm dynamics that make these cases less attractive than they once were. Although headline damages can be enormous, the cases typically require years of work, large multidisciplinary teams, and significant upfront investment with no guarantee of recovery.

Another key factor is reputational risk. Firms are increasingly cautious about being seen as adversaries of governments, particularly in sensitive jurisdictions or disputes involving public policy, natural resources, or infrastructure. Partners noted that political backlash, enforcement uncertainty, and the potential impact on other client relationships all weigh heavily when firms decide whether to proceed.

The article also highlights that many corporate clients are less willing to bankroll these disputes directly. Budget scrutiny has intensified, and companies facing disputes with states are often reluctant to commit tens of millions in legal fees over a long time horizon. This dynamic has contributed to a rise in alternative fee arrangements and third party litigation funding, though even those tools do not fully offset the burden for law firms carrying significant work in progress.

As a result, specialist boutiques and arbitration focused firms are increasingly stepping into the space once dominated by global giants. These smaller players often have lower overhead, deeper niche expertise, and a greater tolerance for the long timelines associated with sovereign disputes.