Paul Taylor, a fellow at George Mason University’s National Security Institute, stated that when attorneys use third-party litigation funding (TPLF) for lawsuits, their goal shifts from justice to making money. Taylor shared his statement during a House Judiciary Subcommittee hearing on June 12.
"When lawyers fund their own cases, they do so with one eye on their ability to recover their costs and make a profit, and the other eye on achieving what their clients view as a just result," said Taylor. "But what happens when lawyers enter into agreements with third parties to fund their lawsuits under a fiduciary duty to maximize not justice, but their own profits, using contracts that condition funding on the lawyer and their client's losing some degree of control over the case to their financial backers? Lawyers aren't supposed to sign away their clients' autonomy in cases to some third party whose financial interests may diverge at one point or another with how the client wants to handle their case. But that's what lawyers are increasingly doing."
According to a May report from the consulting firm Sedgwick, TPLF began growing in popularity in the U.S. in 2010 and has continued to become more prominent due to a lack of regulation. Third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021. Sedgwick found that TPLF is contributing to social inflation, or the cost of insurance claims rising faster than overall economic inflation. The firm did not list Nevada among states that have enacted legislation to regulate TPLF.
The Insurance Information Institute (III) categorizes TPLF as a form of "legal system abuse," which is making insurance more expensive for policyholders, according to a press release. "The price of insurance is the effect, not the cause of risk, and there must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture," said III CEO Sean Kevelighan.
Nevada drivers pay an average of $3,004 annually for full coverage car insurance, compared to the national average of $2,311, according to a report from Bankrate.
Former State Senator Scott Hammond sponsored a bill last year that would have required transparency around TPLF, 2News reported. Proponents of the bill said third-party investors are influencing legal cases in order to optimize the amount of money they make from the cases. "These investors will front money to a law firm or party in exchange for a predetermined percentage of any award or settlement," Hammond said. "This sophisticated industry is multi-faceted, but it includes funders investing in individual cases, or with increasing frequency, an entire portfolio of particular cases at a law firm. TPLF can increase the number of lawsuits of questionable standing or frivolous in nature to be filed." The Nevada Justice Association opposed the bill.
Taylor has previously served as Senior Counsel at the House Committee on Oversight and as Chief Counsel to the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice, according to the National Security Institute’s website. He is an elected member of the American Law Institute.