Chubb CEO Evan Greenberg said society and the business community need to start asking questions regarding the purpose of third-party litigation funding, a major contributor to increases in frequency and severity within casualty lines.
“What social purpose does litigation funding really serve,” Greenberg proposed during a keynote speech at Riskworld, the Risk & Insurance Management Society’s annual conference in Atlanta.
While acknowledging that litigation funding does help plaintiffs who cannot afford to represent themselves, Greenberg said the “vast majority – where [litigation funding] is an asset class for investment – I think is against society’s interest.”
Asked by a risk management student whether insurers should invest in litigation funding as well, Greenberg said, “It sounds sort of like eating your own seed corn. I don’t think that’s the way to hedge – to start an arms race.”
Instead, Greenberg called for legislation, starting with disclosure laws.
“The plaintiff should have to disclose who’s funding the lawsuit,” he said, adding that the jury would have more clarity regarding “who’s interests are being served.” However, he said headwinds against such laws exist because the trail bar is well funded, as is its war chest for political campaigns. A campaign against the practice “requires the war chest of the American business community to press back against it,” Greenberg said.
A report early this year from litigation finance advisory firm Westfleet Advisors said there was a 16% increase in capital committed to new U.S. litigation funding deals in 2022. Litigation funders invested $3.2 billion last year.
During his keynote, Greenberg said casualty rates in most classes will need to continue to rise to keep up with loss costs, driven in part by an “aggressive trial bar…turbo-charged by litigation funding” and set against a “backdrop of societal attitudes around social justice, anti-corporate sentiment, and juries sympathetic to victims.” He cited data from the U.S. Chamber of Commerce Institute for Legal Reform that the total cost and compensation paid in the tort system was $443 billion in 2022 – about 2.1% of the country’s gross domestic product – and only 53 cents of each dollar goes to plaintiffs.
“Excessive litigation is a tax on the economy and the business community as a whole must take the lead if we’re to bring this back to a more rational place,” Greenberg said. “Innovation and progress are impacted by an excessively litigious society.”
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