Groups Push for Federal Court Rule to Disclose Litigation Funding

The Lawyers for Civil Justice and the U.S. Chamber of Commerce Institute for Legal Reform are seeking a federal rule to require the disclosure of third-party litigation funding.

Currently, the matter is handled in federal courts with mixed results. According to a letter from the groups to the Advisory Committee on Civil Rules, a recent study found federal district judges granted 40% of motions for some form of TPLF disclosure.

Also, some federal district and appellate courts have adopted rules requiring automatic disclosure. “Our courts are employing disparate approaches and reaching different conclusions due to the lack of [Federal Rules of Civil Procedure] guidance,” the groups said in their letter earlier this month. The advisory committee proposes amendments to the FRCP.

The insurance industry has routinely pointed to litigation funding—investments in lawsuits in exchange for a percentage of a settlement or judgment—as a big reason for a rapid increase in litigation costs. The practice has been afforded confidentiality protection in many cases, although others with economic interest or influence in litigation are revealed during the court process. Insurance contracts are disclosed. Even if TPLF benefits some plaintiffs, funders should not be excluded from identification, said proponents of reform.

The American Property Casualty Insurance Association (APCIA) has, with other industry trade associations, fought for TPLF reform by backing legislation like the Protecting TPLF From Abuse Act.

APCIA said it “strongly supports the effort led by Lawyers for Civil Justice and the U.S. Chamber of Commerce Institute for Legal Reform to establish a national, uniform federal rule requiring disclosure of third-party litigation funding in federal courts.

“Transparency about who has a financial stake in litigation is essential to fairness, accountability, and the effective administration of justice,” said Stef Zielezienski, APCIA’s executive vice president and chief legal officer, in a statement. “When outside funders can influence litigation and settlement decisions without disclosure, it undermines trust in the legal system and creates uncertainty for courts, litigants, and consumers alike. A clear, consistent disclosure rule will help ensure judges and parties know who is truly ‘in the courtroom,’ identify potential conflicts of interest, and manage cases more efficiently.”

During APCIA’s annual meeting last year, Gareth Kennedy, principal of insurance and actuarial advisory service for EY, said the firm has found the average cost for a commercial claim has gone up 10% to 11% per year since 2017. He said the research concluded that over the next five years TPLF will cost the insurance industry up to $50 billion in direct and indirect costs.

Under the current rule that includes the disclosure of insurance contracts, the LCJ and ILR suggests adding broader language to include any entity or individual that is providing funding or has a financial interest in the outcome of a case.