In support of recent efforts at the state and federal levels of government to curtail third-party litigation funding, the American Property Casualty Insurance Association has asked the House Committee on Oversight and Accountability to consider disclosures.

“As insurance protecting civil defendant consumers and businesses must be disclosed in nearly all jurisdictions and in the U.S. District Courts, it is indeed peculiar that those backing litigation financially are not similarly obligated to disclose their involvement,” wrote Nat Wienecke, APCIA’s senior vice president of federal government relations, a letter to the committee who met on the matter Sept. 13.

Litigation funding, largely unregulated but for some states’ disclosure laws, is turning civil justice into a commodities market that serves investors—not plaintiffs, Wienecke said.

“Third-party litigation funding is a dark money lending practice that allows unknown investors with no ties to the injured person to invest in lawsuits, and in some cases falsely inflate medical costs, for their own profit,” he added in a statement from the trade association.

Citing the U.S. Chamber Institute for Legal Reform, APCIA said the average household pays a “tort tax” of more than $3,600 due to unnecessary and abusive litigation.

“The committee’s examination is an important step forward as our nation begins to reckon with the consequences of encouraging ever more and often frivolous litigation and damages,” Wienecke said. “We strongly endorse your examination and greatly appreciate your leadership in doing so.”

An oft-cited study from litigation finance advisory firm Westfleet Advisors from early this year said there were more than 40 funders in the U.S. market in 2022 with a combined $13.5 billion in assets under management. They committed $3.2 billion to litigation funding in 2022—a 16 percent increase from the previous year. Meanwhile, the casualty insurance industry has noticed marked increases in so-called “nuclear verdicts” – exceptionally high jury verdicts of more than $10 million.

In an address in May at Riskworld, the Risk & Insurance Management Society’s annual conference, Chubb CEO Evan Greenberg said it was time to question the societal benefits of the growing practice in litigation. He said casualty insurance rates in most classes will need to continue to rise to keep up with loss costs, driven in part by an “aggressive trial bar…turbo-charged by litigation funding.”

There are some, however, who believe litigation allows plaintiffs to survive as they pursue legal recourse. During a panel discussion hosted by the Coalition Against Insurance Fraud this summer, Eric Schuller, president of the Alliance for Responsible Consumer Legal Funding, said that because litigation financers are spending their money, they become “screening devices” on the merits of a claim.

Wienecke in his letter to the House committee said litigation funders’ “only interest is increasing the return on their investment,” and they reduce the recovery for claimants.

This article was previously published by Insurance Journal. Reporter Chad Hemenway is the National Editor of Insurance Journal.