Indiana has become the latest state to require third-party disclosure in criminal cases.
The law – signed into law by Gov. Eric Holcomb on April 20 – requires that each party in a civil lawsuit and any insurer responsible for defending a party in court be notified of any financial agreement before the trial begins.
The US Government Accountability Office defines third-party funding as “a process in which a donor who is not involved in the litigation agrees to support the funding.” Multi-billion dollar companies around the world have used third-party financing to fund their sole or major businesses and are growing exponentially.
Given the volatility of the market, estimates of the size may vary but, according to Swiss Re, more than half of the $17 billion invested in global litigation in 2020 was sent to the United States. Swiss Re estimates that the market will be as large as $ 30 billion by 2028. Currently, the affordability of insurance – especially for motor vehicles – is at risk due to the number of cases and payment costs.
Several states have moved ahead of Indiana in seeking to increase transparency in third-party financing. In 2018, New York enacted a law that added Section 489 to the New York Judiciary Law. The Act provides for the power to disclose financing agreements in class action lawsuits and all other comprehensive proceedings. In the same year, Wisconsin enacted a law requiring the disclosure of sources of income. West Virginia followed suit in 2019.
In 2021, the U.S. District Court for the District of New Jersey changed its rules to include third-party financial reporting in pending court cases. The Northern District of California enacted a similar law in 2017 for groups, masses, and events throughout the state.
In 2022, Illinois passed the Consumer Legal Funding Act (SB 1099), which established a number of laws to regulate aspects of third-party funding, but does not relate to the disclosure of these arrangements or information about the existence of a funding arrangement to defendants. as part of criminal proceedings.
Legal aid doesn’t just raise money – it creates goals that go beyond achieving court outcomes. This is why this practice was previously banned in the United States. As these restrictions have been lifted over the past few decades, litigation costs have grown, spread, and evolved into forms that can cost plaintiffs more in interest than they will gain in settlement. In fact, it can encourage protracted litigation to the detriment of all involved – except the funders and plaintiffs’ lawyers. Top of Form
The National Association of Mutual Insurance Companies (NAMIC) praised Indiana’s actions.
“Litigation is a multi-billion dollar industry that has for many years driven the length and cost of litigation,” said Neil Alldredge, president and chief executive officer of NAMIC. “While much remains to be done to address this problem, this legislation represents important progress.”
Disclosure of litigation costs from a third party before filing a lawsuit “will help prevent opportunistic investors from promoting reimbursement in the interests of clients and shift costs from clients away from policyholders, claimants and insurers,” Alldredge said.
Learn more:
What Are Third Party Fees and How Do They Affect Insurance Prices and Affordability?
US Survey of 3rd Party Litigation Funding Market Growth, Lack of Visibility
IRC Study: People’s Perceived Impact of Lawsuits on Auto Insurance Claims
Finance Law Found Lacking in Transparency Department
A Step-by-Step Approach to Financial Transparency
Lawyers’ Group Agrees on Best Practices for Litigation Funding