Two states enact limits on litigation funding
By onLegal
Indiana and West Virginia legislators have passed bills to put limits on litigation financing — a practice that insurers say encourages unnecessary lawsuits, and burdens the legal system.
Litigation funding companies (LFCs) act as third parties to finance consumer and commercial litigation through non-recourse loans or by accepting legal assets as collateral, according to the Swiss Re Institute.
Swiss Re has previously said LFCs back many types of commercial and consumer claims in relation to, among others, trucking accidents, bodily injury, product liability mass tort, and medical liability, with the focus on the consumer side being personal injury cases.
In Indiana, Gov. Eric Holcomb signed House Bill 1160. The law blocks foreign entities from funding lawsuits and parties involved in the litigation from sharing with financiers any information that a court has ordered sealed. It also prohibits finance firms from influencing the outcome.
The Senate passed the bill March 4 followed by the House March 6. Holcomb signed it into law on March 13.
After Holcomb signed the bill, the American Property Casualty Insurance Association (APCIA) issued the following statement:
“APCIA commends Majority Floor Leader Matt Lehman, Gov. Holcomb, and the Indiana Legislature for their commitment to maintain a fair, efficient, and transparent civil justice system. Requiring disclosure and discovery of funding by third parties involved in the litigation and to the courts is a critical step to restoring balance to the legal system. APCIA is also pleased the bill will prevent foreign adversaries from influencing the litigation process. These common-sense guardrails around third-party litigation funding are necessary to facilitate litigation transparency and protect consumers and businesses.”
The new law also makes the specifies of commercial litigation financing agreements subject to discovery in court cases.
Among the prohibitions on litigation financiers laid out in West Virginia SB 850 are:
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- Paying or offering to pay commissions, referral fees, or other forms of consideration to any attorney, law firm, or medical provider for referring a consumer to a litigation financier;
- Accepting any commissions, referral fees, rebates, or other forms of consideration from an attorney, law firm, or medical provider;
- Advertising false or misleading information regarding its products or services;
- Referring a consumer or potential consumer to a specific attorney, law firm, or medical provider;
- Failing to promptly supply copies of all complete litigation financing contracts to the consumer and the attorney representing the consumer in the dispute; and
- Offering or providing legal advice to consumers regarding litigation financing or the underlying dispute.
The bill was passed by the Senate Feb. 28 and the House March 9. It was sent to the governor March 12.
At least 10 states, including Georgia, Florida, Ohio, Missouri, Iowa, Kansas, and Oklahoma introduced similar bills, according to the Insurance Journal, but none advanced.
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