When an accident upends a life, it’s the insurers who help people get back on their feet. It’s our job to be there for folks on their worst days and to keep things affordable otherwise. But lately, trouble has crept into that process — lawsuit funding companies driving up costs for their own benefit.
You may have seen it: slick ads promising “cash now” while your personal injury lawsuit winds through court. For some, it sounds like a lifeline. Only, people don’t realize that for every month the case drags on, the interest ticks up. The financiers aren’t incentivized to settle quickly — it’s just the opposite. If these funding companies prolong the resolution process, it means higher legal costs, increased billable hours and additional court fees for everyone else, but for them it squeezes more profit from the plaintiff’s suit. When the litigation finally does settle, the folks who fronted the money take the lion’s share.
It’s called third-party litigation funding — a scheme that has quietly increased the price of insurance for everyday people throughout the state. And unfortunately, it has become a growing trend in the legal industry.
Here’s how it works: outside investors bankroll plaintiffs in exchange for a portion of their eventual settlement. These lenders market the deal as offering a helping hand to the little guy. But in reality, these deals border on predatory, with hidden fees and high, compounding interest rates. Every month the case continues, the litigation funding company earns more, and the plaintiff gets less.
These litigation funding schemes are incredibly lucrative for the investors, providing an average annual return of about 36 percent. That’s why, when funders smell an opportunity to co-opt injury lawsuits, they circle like sharks. They’re incentivized to find — and even recruit — victims, then flood the courts with drawn-out cases. Every new lawsuit lending fund-backed claim congests our already-strained legal system, creating a backlog that compounds costs for plaintiffs and defendants alike. The goal isn’t to help people, but to exploit and extract revenue from them.
All that extra time litigating and added legal expenses don’t occur in a vacuum, either. The elevated quantity of claims drastically increases insurance carriers’ workloads and takes attention away from resolving genuine losses efficiently and keeping costs under control. Meanwhile, the lengthy litigation process associated with the claims forces insurers to spend vastly more resources on legal defense. These added costs are factored into policy pricing, leading to New Yorkers paying more for the insurance they need.
For those of us in the insurance business, this troubling trend hits close to home. We help people rebuild and move forward while offering New Yorkers the protection they need and the peace of mind they deserve. But third-party litigation funding makes that work extremely difficult.
Lawsuit funding should be transparent, well-regulated and, above all, fair. When litigation funders operate behind the scenes, recruit desperate people into their schemes, charge them exorbitant interest rates and manipulate the legal system for their own benefit, something is seriously wrong. Lawmakers should instead require third-party funders to disclose their involvement in litigation and plainly explain the terms of their deals. That would shed sunlight on their behavior and prevent the abuse of potential victims.
New Yorkers deserve a justice system that protects the vulnerable from exploitation. To achieve that, though, we have to bring third-party litigation funding out of the shadows. These schemes transform injury claims into business opportunities and victims into commodities—all while raising the cost of insurance for New Yorkers across the state. It’s time to bring transparency to litigation funding and lawsuit lenders from turning people’s pain into profit.
Edward Harper is the president and CEO of Statewide Underwriting Services and the chair of the New York Insurance Association.
This article originally appeared on Rockland/Westchester Journal News: Don’t let lawsuit funding turn NY’s pain into profit | Opinion
Reporting by Edward Harper, Special to the USA TODAY Network / Rockland/Westchester Journal News
USA TODAY Network via Reuters Connect
