When Lawsuits Are Investments: Litigation Funding  July 7th 2023

When Lawsuits Are Investments. Uncovering the Pernicious Toxicity of Litigation Funding - Risk & Insurance

When Lawsuits Are Investments. Uncovering the Pernicious Toxicity of Litigation Funding

Factors like the increasing popularity of third-party litigation funding are contributing to rising litigation costs in the U.S.

Litigation costs are on the rise across the U.S.

These increased costs have an impact on federal, state and local governments — and on insurance carriers and policyholders.

One of the key drivers of increasing litigation costs is the rapid rise in popularity of third-party litigation funding (TPLF), a practice defined by the U.S. government as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it.”

These arrangements often keep the identity of the funder a secret from the rest of the parties involved with the lawsuit, meaning the hidden entities behind third-party litigation funding could be anyone, anywhere — including bad actors with malicious agendas.

Foreign-sourced money being washed through TPLF schemes is a growing concern, especially with the privacy privileges granted to the funders.

And even without the fear of a shadowy quasi-government figure or political group with ulterior motives providing funding, the rules for third-party litigation funding lack transparency.

It is possible, for example, that an entity could fund part of a lawsuit without the knowledge of the judge, attorneys, plaintiffs and defendants.

If the involved parties in the lawsuit don’t know of the existence of the funding firm, they also may not be aware of its influence over the lawsuit. While some funding firms are interested in the large profits they stand to make if the lawsuit succeeds, others may have more nefarious motives.

A webinar held by the Travelers Institute addressed the topic of rising litigation costs and its key drivers.

Abi Potter Clough

"Insurance fraud is a huge problem in the United States"

A recent study has revealed concerning trends regarding the tolerance for insurance fraud among certain demographic groups in the US.

The survey published by Verisk and the Coalition Against Insurance Fraud found that Americans aged 45 and younger display a higher tolerance for insurance fraud, with some even expressing envy towards those who commit such acts.

In contrast, 87-96% of older respondents considered insurance fraud a crime, compared to only 75% of those under the age of 45. The percentage contin

"The E&S market is on the path to becoming overwhelmed"

The property and casualty (P&C) marketplace currently does not have the capacity to satiate demand from clients, which is driving more and more policyholders to the excess and surplus (E&S) industry, according to one expert. This increased interest may not be sustainable in the long term and could cause some major issues within that sector.

"The E&S market is on the path to becoming overwhelmed,” said Martha Bane (pictured), property practice leader at Gallagher.

In a conversation with Insurance Business, Bane spoke about why the E&S market has been able to absorb this heightened demand so far, what the impact of a major hurricane or natural catastrophe might look like later this year and the importance of finding suitable alternatives in traditional markets for clients.

“London carriers have been stepping up to the plate”

Since standard markets have pulled back this year in providing P&C coverage and reduced the amount of capacity being offered, clients had nowhere to go but to E&S providers.

“And they have probably written more business this year than they have in the past 20 years,” said Bane.

While these carriers may have filled large gaps in coverage, they have generally done so at a more expensive rate than what would be offered in the standard market..

Bane also noted how working with E&S carriers sacrifices some of the necessary interpersonal connection involved in insurance dealings.

Divided Appellate Panel Upholds Total Loss Valuations Using CCC Software

An insurer that used CCC Intelligent Solutions software to determine the payout for a claimant’s vehicle did not violate a Florida law that sets forth only three methods that auto insurers may use to determine actual cash value, a divided panel with the 11th Circuit Court of Appeals ruled.

In a 2-1 decision Monday, the appellate panel affirmed a ruling by the US District Court for the Southern District of Florida that dismissed a putative class action lawsuit filed against Safeco Insurance Co. of Illinois. Policyholder Gina Signor alleged that Safeco failed to comply with Florida Statute 626.9743 when it used CCC to determine a total loss payout for her 2014 Lexus.

“The meaning of this statute is a question of first impression in our Circuit,” the majority opinion says. “Further, we have no authoritative interpretation of it from Florida’s appellate courts to guide us.”

Class action lawsuits alleging improper valuation methods have been costly for auto insurers in recent years. Last month, a federal judge gave preliminary approval to a $2.3 million settlement in a class-action lawsuit against USAA Casualty Insurance Co. for allegedly underpaying for taxes on totaled vehicles.

In 2021, American Family Mutual Insurance agreed to pay $5.7 million to settle a lawsuit that alleged it had underpaid total loss claims in Washington state by using a “typical negotiation discount when determining actual cash values. PEMCO Insurance Co. also agreed in 2021 to pay a $14.1 million settlement for using a similar discount in Washington.

The decision in Signor’s case may save Safeco from a similar costly settlement.

Safeco determined that Signor’s vehicle was a total loss after an accident. It used CCC’s One Market Valuation system to calculate the value of that loss.

[Ed. note: significant and innovative collaboration] Tokio Marine introduces Global Digital Market Intelligence Platform

Tokio Marine Holdings, Inc. ("Tokio Marine") introduced a group-wide market intelligence platform in June 2023 to support operations related to collaboration with external companies. The system allows the group to share information, including the status of search and scouting for potential future business partners, as well as meeting minutes. As open innovation is accelerated, the platform fosters efficiency, streamlining the search process for startup companies.

In today's rapidly evolving landscape, the Insurtech sector, which combines insurance and technology, is experiencing remarkable growth globally. Tokio Marine actively pursues collaborations with Insurtech companies, recognizing their immense potential to drive the development of new products and innovation within its insurance operations.

Previously, the absence of an information sharing system meant that Tokio Marine's group companies worldwide conducted searches for potential business partners independently. This decentralized approach resulted in scenarios where multiple group companies unknowingly engaged with the same startup companies. To address this issue, the platform was co-developed with Tällt Ventures, building upon its Sønr Platform, a company database with over 2 million companies with cutting-edge technologies highly compatible with the insurance industry. Group companies can now seamlessly share information on company searches on the platform.

Besides information sharing on the platform, the platform allows information management through assigning attributes information tags to each external company. Each user can also customize the information display at the home screen to facilitate effective use of the system.

Tokio Marine Holdings commented, "The introduction of this system will allow us to simultaneously facilitate corporate search and horizontal development of collaboration. By leveraging the expertise of our Global Digital Innovation Labs, we aim to accelerate open innovation throughout the group."