Special Report — Legal System Abuse

The U.S. legal system is being abused. That abuse is causing insurance rates to rise and the rising rates are — along with inflation — causing consumers issues in areas like doing business, or owning a home, or driving an auto.

The American Property Casualty Insurance Association (APCIA) issued a report last week getting much more specific about that abuse. Third-party litigation funding, lots of frivolous lawsuits and aggressive advertising by individual attorneys and large legal firms, are driving up costs throughout the U.S. economy.

For example, in 2023 plaintiff lawyers spent $2.4 billion on over 26 million legal service ads. That’s a 5% increase over 2022. It gets worse from there. In 2023 investments in litigation funding hit $15.2 billion. Investors are looking to make money from the lawsuits of others.

The APCIA report says that’s straining the U.S. legal system and is driving up costs for businesses and consumers.

The biggest concern is third-party litigation. Not bound by the same rules as regular lenders, these litigators often get interest rates as high as 200%. The APCIA says this cost the U.S. economy and consumers $443 billion last year. The “lawsuit tax” — as it is loosely referred to — adds an estimated $3,600 per year to each household in the country.

Worse, the size of the jury awards from nuclear verdicts is a huge concern. The APCIA says in 2023 there was a 319% rise in those verdicts because of legal strategies employed by lawyers involved in cases. Insurers offering commercial and personal umbrella coverage are now seeing bigger awards and claims more frequently.

All of this is adding to the higher cost of liability insurance.

Over 100 large corporations in all sectors of the U.S. economy are pushing for changes. Among them are Amazon, Google, Cisco, Meta, Comcast, Exxon, Zurich, Ford and Pfizer.

Along those lines, California Republican Rep. Darrell Issa has introduced a bill in the U.S. House of Representatives requiring disclosure of litigation funding in lawsuits. The bill will require all named parties in a civil action to name who will receive payment. All parties will also be given a copy of any third-party agreement.

“Our legislation targets serious and continuing abuses in our litigation system and achieves a standard of transparency that people deserve and our standard of law requires,” Issa said. “We believe that if a third-party investor is financing a lawsuit in federal court, it should be disclosed rather than hidden from the world and left absent from the facts of a case. When we achieve a lasting measure of awareness by all parties, it will advance fair and equal treatment by the justice system and deter bad actors from exploiting our courts.”

Source link: Insurance Business America — https://bit.ly/47Xjf4K

Source link: Reuters — https://bit.ly/3Nh1kN2

Source link: Bloomberg Law — https://bit.ly/3Nj2LKX