Increasing TPLF and Securities Class Actions Heighten Insurer Risks

The latest reports from Cornerstone Research and Westfleet Advisors highlight a surge in securities class action settlements and third-party litigation funding (TPLF), posing increased risks for insurers. Cornerstone’s annual report shows a significant 11% increase in median settlement amounts and a notable rise in mega settlements, which now account for nearly two-thirds of the total settlement dollars. Despite a 20% decline in the number of settlements, total settlement amounts remained stable, reflecting the influence of high-value cases involving institutional investors.

Westfleet Advisors’ research on TPLF reveals a shift towards larger law firms, with commitments to Big Law rising from 28% in 2022 to 35% in 2023. Although new capital commitments for commercial litigation decreased by 14%, the monetization of claims saw a substantial increase, indicating strategic changes in TPLF usage. These trends weaken the traditional "David versus Goliath" narrative and suggest a focus on maximizing litigation profits.

The implications for insurers are significant, as prolonged litigation and larger settlements drive up costs and impact insurance coverage. Legal system abuse, characterized by extended litigation to secure higher settlements, exacerbates these challenges. Insurers respond by adjusting underwriting practices, policy exclusions, and reserves, but the lack of transparency in TPLF remains a concern. Calls for regulatory oversight to increase transparency and mitigate risks are growing.