The European Parliament plenary session has adopted MEP Axel Voss’ own initiative legislative report on responsible third-party litigation funding (TPLF).
The one-page report summary, which is available here, calls on the European Commission to propose solutions for the effective supervision of TPLF in commercial and civil disputes.
A statement from the Legislative Observatory for the European Parliament says that commercial TPLF is a growing practice whereby private investors (‘litigation funders’), who are not a party to a dispute, invest for profit in legal proceedings and pay legal and other expenses, in exchange for a share of any eventual award. Collective redress is only one type of litigation in which TPLF is currently used, with other examples being arbitration, insolvency proceedings, investment recovery, anti-trust claims, and others.
It has, writes the Legislative Observatory, been a practise developing into a market without a specific EU-wide legislative framework in place. It says that TPLF, if properly regulated, could be used more often as a tool to support access to justice, especially in countries where legal costs are very high or for women and marginalised groups with additional funding barriers.
Insurance Europe has responded to the report, saying that it welcomed its findings that provide ‘a strong basis for ensuring that the TPLF sector receives appropriate supervision’. That followed a letter written in June in which it called for the European Union to help protect all parties from ‘opportunistic legislation’.
Malene Bye Rasmussen, senior policy adviser at Insurance Europe, said: “This would require TPLF providers to focus on the interests of funded claimants in both collective consumer redress actions and B2B disputes. It would also create significant benefits for both consumers and companies relying on funding agreements, and businesses defending funded claims.”
She added: “Consumers and companies relying on funding agreements would be secure in the knowledge that funders could not charge exorbitant fees from any awards. Funders would also be required to have appropriate capital reserves to cover their commitments and would not be able to discontinue their financial support without cause.”
Rasmussen pointed out that the proposals would minimise the risk of abusive litigation tactics against firms defending funded claims. This, said Rasmussen, would be the court would have knowledge of the existence of a funding agreement and would have some powers to oversee conduct.
She added: “Europe’s insurers would welcome a commitment by the European Commission to, during its current mandate, conduct further research into the impact of the TPLF sector. This could be via an impact assessment or independent study and could enable the Commission to consider what action should be taken.”
TPLF has been a subject repeatedly on the pages of Reinsurance News in recent months. A few weeks ago, Triple-I called it a multi-billion-dollar industry that was driving up insurance costs and exacerbating claims inflation. This followed its own report in February that social inflation—which it linked to TPLF—had increased commercial auto insurance liability in the US by over £20bn in nine years.
