Policyholders who have a disagreement with their insurance company that they couldn’t settle through arbitration have long had the option to sue. However, the time and expense of a lawsuit can make legal action cost-prohibitive. This is where third-party litigation funding (TPLF) comes in, with outside parties offering to “loan” the necessary money for a potential lawsuit in exchange for a cut of the settlement.

Regulating TPLF

Multiple states have enacted legislation to regulate TPLF, with North Carolina becoming the first state to ban outside investors from funding lawsuits entirely. Other states, such as Georgia and New York, have implemented restrictions on TPLF, including requiring funders to register with state regulators and capping how much of a settlement a funder can take.

Insurers argue that TPLF is driving up costs for everyone through higher premiums, and that lawsuits have become investment vehicles rather than a means of resolving disputes. They claim that hedge funds and other litigation funders are targeting insurance companies directly, leading to inflated settlements and increased costs for consumers.

Concerns Over Access to Justice

However, proponents of TPLF argue that it provides a legitimate financial service, allowing people and smaller companies to afford lawsuits against larger, better-funded opponents. They claim that banning TPLF could hinder access to justice for those who cannot afford to sue, and that it could have unintended consequences, such as reducing the number of legitimate lawsuits.

Original reporting: KTBS 3 (Shreveport) — read the source article.