Piecemeal efforts to bring transparency to third-party litigation funding continued apace (albeit a snail’s pace) with legislation the governor of Illinois signed into law on May 27th.
The funding of lawsuits by investors with no stake beyond the potential to profit from any settlement has been a growing contributor to the phenomenon known as ‘social inflation’: Increased insurance payouts and higher loss ratios than can be explained by economic inflation alone.
These increased costs necessarily end up being shared by all policyholders through increased premiums.
Litigation funding not only drives up costs -- it introduces motives beyond achieving just results to the judicial process. This is why the practice was once widely prohibited in the United States.
As these bans have been eroded in recent decades, litigation funding has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they might otherwise gain in a settlement. In fact, it can encourage lengthier litigation to the detriment of all involved -- except for the funders and the plaintiff attorneys.