The “Consumer Litigation Funding Model Act,” was introduced in the Missouri House, Wednesday, Feb. 23, by Rep. Phil Christofanelli. It addresses a growing and extremely concerning legal trend that puts vulnerable individuals who file a lawsuit at risk of being taken advantage of by private investors, called third party litigation financers, according to the American Property Casualty Insurance Association (APCIA). Third party litigation financing (TPLF) or consumer litigation funding involves financiers, who have no connection to the lawsuit, and issue loans to litigants in exchange for a portion of any settlement or judgment received.
“The end result of these loans is that the person filing the suit often sees little to none of the award, if there is one, because the lender takes it all,” said Hilary Segura, assistant vice president for state government relations for APCIA, which supports the reforms. “TPLF undermines the intent of litigation and makes a mockery of our justice system. Litigation financing essentially turns the court system into a money-making machine, which is driven by lenders and or investors who are only looking to get a high rate of return on their investment.”
These investors are often little known hedge funds or special purpose investment funds and even sovereign foreign influencers. In some states, these investments, or loan transactions, are regulated, but NOT in Missouri.
“The legislation introduced in Missouri puts commonsense guardrails on third-party litigation financing and provides consumer protections by requiring that these loans be regulated by the state Department of Commerce and Insurance. It also outlines consumers’ rights and requires that a series of disclosures be made including the existence of the litigation financing arrangement as a part of discovery during personal injury litigation. This helps to ensure that defendants and the courts are aware of the presence and identity of the funders of the litigation,” said Segura.
TPLF is estimated to be a $11-12 billion industry in the United States. To ensure a high rate of return on its investment, the funder seeks to increase the likelihood of trial, thus enhancing the possibility of frivolous and misguided litigation. TPLF discourages amicable settlement of disputes and encourages aggressive and prolonged litigation of marginal claims. This adds to Missouri’s already significant “tort tax” of $505.21 on households and drives up the costs of products, services, and insurance.
“APCIA supports reforming third party litigation financing in Missouri and across the country. House Bill 2771 is critical to protecting consumers. Requiring those involved in litigation to disclose the presence and financial interest of outside parties could limit the financial damage and restore fairness and efficiency to our legal system,” said Segura.
The American Property Casualty Insurance Association (APCIA) is the primary national trade association for home, auto, and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA members represent all sizes, structures, and regions—protecting families, communities, and businesses in the U.S. and across the globe.