Legal system abuse drives rising costs for US households and businesses

Legal system abuse drives rising costs for US households and businesses – APCIA | Insurance Business America

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Legal system abuse drives rising costs for US households and businesses – APCIA

Lawsuit trends push expenses up

Insurance News

By
Kenneth Araullo

The rising cost of doing business, owning a home, and driving a car in the US is not solely due to inflation, according to insights from the American Property Casualty Insurance Association (APCIA).

Legal system abuse, driven by aggressive attorney advertising, frivolous lawsuits, and third-party litigation funding, is contributing to a growing litigious environment that is pushing up costs for both consumers and businesses. This trend has placed a burden on state economies, sparking calls for legal reforms aimed at curbing these rising costs.

Data provided by APCIA highlights the scope of the issue. In 2023, plaintiff lawyers spent $2.4 billion on more than 26 million local legal services ads, a more than 5% increase from the previous year.

Additionally, investments in US litigation funding climbed to $15.2 billion in 2023. APCIA notes that this influx of funds from investors looking to profit from others’ lawsuits has exacerbated the strain on the legal system, further driving up costs.

Third-party litigation funding, in particular, has become a growing concern. These lawsuit lenders, who are not bound by the same regulations as traditional lenders, often charge interest rates that exceed 200%.

APCIA said that the rise of litigation fueled by these lenders has had a widespread economic impact, costing the US economy an estimated $443 billion. This so-called “lawsuit tax” is estimated to add $3,600 to the annual expenses of each household.

APCIA also pointed to the increasing size of injury awards, noting a 319% rise due to legal strategies that influence jury decisions. Insurers, particularly those offering commercial and personal umbrella coverage, have seen more frequent and larger claims, which is contributing to higher liability insurance premiums.

Beyond the financial impact, APCIA warned that the lack of disclosure in third-party litigation funding could also allow foreign entities to exert influence over US courts, potentially threatening both economic and national security.

Experts like Robert Hartwig and Lynne McChristian have discussed the role of third-party litigation funding in driving up costs for households and businesses. They have called for reforms aimed at addressing these trends, noting that without legislative action, the increasing burden on consumers will continue.

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