Third Party Litigation — A Much Needed Regulation Revision

Nuclear verdicts in the millions of dollars and third-party litigation funding (TPLF) have been a thorn in the side of insurance and businesses for several years. With the potential of millions of dollars of profit, third-parties have begun investing in lawsuits.

Insurance groups have been intensely lobbying state and federal regulators to change the rules. Most third-party “investors” — which is what they are — are hidden behind the scenes. There are no rules regarding identifying them. Not only that, many are from other countries and are making millions from lawsuits that ought not have multi-million dollar judgements.

Lobbying in Congress has gotten the attention of Republican Sen. Chuck Grassley. The Iowa senator is the chairman of the powerful Senate Judiciary Committee. He has introduced the Litigation Funding Transparency Act of 2026 to require TPLF disclosure in class action suits, multi-district litigation and other large cases.

On October 21st at its last meeting, Grassley gave a letter to the Advisory Committee on Civil Rules asking for it to take action. Members are appointed by the Chief Justice of the U.S. Supreme Court and the committee is charged with continuously studying, evaluating, and drafting proposed changes to the Federal Rules of Civil Procedure for the U.S. federal courts.

Grassley’s letter wants the committee to require more disclosure of third-party litigation funding. He said those funding these lawsuits, “often prioritize using the courts for monetary return rather than for obtaining justice for the parties involved in the cases.”

A big concern brought out in the letter involves foreign investors getting trade secrets from businesses during the discovery process. This litigation also ties up assets for businesses because of the need for high-priced. It also lengthens the process from the time a suit is filed until it’s settled.

“In addition to providing this data so the practice could be evaluated fairly, required disclosure would help ensure fairness in the courts,” Grassley wrote and said it will discourage those with nefarious intent.

“If a third party funding arrangement cannot stand up to public scrutiny, it likely should not occur,” he added.

Insurance companies and others in various businesses and industries sent a letter to the committee in September supporting reforms wanted by the Lawyers for Civil Justice (LCJ) and the U.S. Chamber Institute for Legal Reform.

“Given the [rules’] emphasis on transparency about financial interests in litigation, the absence of a TPLF disclosure requirement is inexplicable,” LCJ told the committee.

Source link: Insurance Journal — https://bit.ly/4yJ31bi