Third Parties & Lawsuits — An Ever-growing Insurance Crisis

The Casualty Actuarial Society is very concerned about third party litigators and the impact it is having on insurance as nuclear verdicts often follow third parties “investing” in the outcome of a lawsuit.

Mike McComis is a senior manager for the financial managers, EY (formerly Ernst Young) and a member of the actuarial society. He said the society did a study of the impact of the third party groups and found a five year cost to insurers — between 2024 and 2028 — could hit $13 billion to $18 billion.

Put a mid-range figure in there and you’re looking at $15.6 billion.

McComis said some of that money goes to more, and better, advertising which brings in more business, and that hurts insurers. “But our belief was that a large proportion of this will be paid by the insurance industry in some fashion, whether it’s the primary insurers, excess or reinsurers,” he said. “These are generally cases that are pushing things up into the excess and umbrella layers.”

Part of what is happening with these third-party lawsuits is nuclear verdicts. Though this one may — or may not — have used a third party to finance the suit, a woman in Georgia was just awarded $4.2 million from an attack by a neighbor’s dog in 2020.

The Insurance Information Institute (Triple-I) says the cost of dog bite claims jumped in 2024 to an average of $69,272. Between 2015 and 2024 those costs rose an average of 86.1%

We truly have become a very litigious society and third-party investors are making a financial killing helping to pay for these lawsuits. Many are foreign investors.

While Congress is moving legislation to restrict third-party litigation at a snail’s pace, some states are stepping in to protect individuals and insurers. Colorado, Georgia, Kansas and Oklahoma put rules in place to regulate third-party litigation funding this year.

Joining them in such consideration are the PIA Western Alliance states of Arizona, Montana and California. Arizona’s law doesn’t require the disclosure of outside money funding a lawsuit but a law was passed from the current legislative session prohibiting litigation financiers from paying — or offering to pay — commission or a referral fee to legal council.

And the bill bans foreign-owned and influenced direct, or indirect, funding for such lawsuits.

The PIA Western Alliance state of Montana takes an even more strict rule for such financing. Two-years ago Montana capped the amount of money a financial firm can receive — or recover — from a lawsuit at 25%. All financial and financing agreements in lawsuits must be disclosed.

The Legislature is looking at SB511 to limit what it calls nuisance lawsuits. The rules from this bill bans those financing a lawsuit from influencing decisions on council, expert witnesses and strategy in the suit and the settlement.

Montana’s bill will also require disclosure and registration of any third-party “investors” that includes a foreign investment company. Many foreign adversaries and people of concern will also be barred from financing legislation in Montana.

California’s Legislature is currently looking at passing a law on third-party litigation financing. AB743 has passed the Assembly and is headed for the Senate. It requires third-party commercial litigation financiers to get a license to do that kind of business.

Assembly member Michelle Rodriguez said these financiers are an unregulated, shadow financial sector. “The absence of any regulation in the lawsuit financing industry poses substantial risks to California consumers, the legal system and the state’s economic stability,” Rodriguez said.

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