Paul Taylor, an attorney and fellow at the National Security Institute, stated during a House Judiciary Subcommittee hearing on June 12 that third-party litigation funders can influence lawsuits, with their primary goal being to profit from the cases they fund.
"Unlike most lawyers, third party litigation financers only want to make a profit," said Taylor. "That's the sole reason they exist: to make money for themselves and their investors. Unlike law firms, third party litigation financers don't have a privileged, fiduciary relationship with the plaintiff, even as they may be pulling the strings in a lawsuit."
According to Taylor, the presence of third-party litigation funding (TPLF) in lawsuits can harm individuals and businesses by incentivizing "frivolous" lawsuits against them. He said there is no requirement for the victims of "frivolous" lawsuits to receive compensation for their legal expenses, even if a judge determines that the case was "legally frivolous."
Third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021, according to a report released in May by the consulting firm Sedgwick. TPLF is one factor driving larger verdicts, which are contributing to social inflation, or insurance costs rising faster than overall economic inflation.
The National Association of Insurance Commissioners indicated that TPLF is having an "outsized effect" on social inflation. The practice results in higher premium costs for all insurance policyholders.
California drivers pay an average of $2,633 per year for full coverage car insurance, more than the national average cost of $2,311, according to a report from Bankrate.
Taylor previously served as counsel and chief counsel of the House Subcommittee on the Constitution, Civil Rights, and Civil Liberties for more than 20 years. He also served as senior counsel to the House Committee on Oversight and Government Reform.