Interior of a courtroom

Legal System Abuse Affects Liability Exposures for Businesses

Legal system abuse reform can eliminate some of the excessive costs that lawsuits generate.
Ads for lawyers seem to show up everywhere these days – from billboards to websites, social feeds to TVs. Their omnipresence is part of a changing business model.
 
That’s because plaintiffs’ lawyers now have far more resources to devote to trying to convince potential clients they can win big payouts. Hedge funds and other investors help drive this shift. Investors fund litigation for the right to keep a sizable portion of any court winnings that plaintiffs eventually may be awarded.
 
Third party investors spent $22 billion last year, mostly in the U.S., funding lawsuits with which they were not legally involved.1 To them, the lawsuits were just an investment opportunity. Much of the money they invested went to court fees, expert witnesses and other litigation costs, while helping fuel $1.4 billion in ads to lure in litigants.2 Remarkably, despite the size and the impact of this investment industry, it is essentially unregulated.
 

Playing on Juries’ Sympathies

The barrage of ads does more than help lawyers find clients. The ads also subtly influence jury pools. When potential jurors regularly see and hear about huge verdicts, the idea that massive payouts happen frequently becomes normalized.
 
The pervasive impacts of advertising are mixing with another changing social sentiment – a prolonged, nationwide rise in anti-corporate feelings.3 The American public in particular holds businesses in lower esteem than in the past. This shift in attitude has made it easier for lawyers to sway already-biased jurors against businesses. Instead of looking to ensure that an injured claimant is properly compensated for an injury, plaintiffs’ lawyers position verdicts as a way to send a message to corporations so that something bad won’t happen to others in the future.
 
By reinforcing the perception that huge verdicts are common and that businesses must be punished, plaintiffs’ attorneys have been successful at convincing jurors to be more receptive to awarding unjustifiably large awards.
 

The Cost of Big Verdicts

In the legal world, $10 million is a milestone. Verdicts of $10 million or more are commonly called “nuclear verdicts.”4 The name reflects the fact that the dollar amount is exceedingly high, often much higher than the amount that would seemingly be justified based on the injuries sustained and the facts of a case. They’re happening more often. An analysis by The U.S. Chamber of Commerce found that the number of nuclear verdicts increased 27.5% from 2010 to 2019.5
 
The fallout from nuclear verdicts goes beyond the courtroom. When businesses have to pay large legal judgments, it can force them to raise prices as a way to recoup their losses. This phenomenon is called “social inflation” because price increases are not based on underlying economics, but on the way that social sentiment influences verdicts and judgments, which in turn drives up costs for everyone.
 
Keep in mind that verdicts and judgments are a big piece of the economy. All told, the U.S. tort system cost an estimated $443 billion in 2020, with a sizable portion coming from nuclear verdicts.6 That equates to around $3,600 a year per American household.7
 

Costly for Plaintiffs

The costs may be high, considering who really benefits. While lawyers, their ads and outside investors claim plaintiffs win big, the reality is different. Plaintiffs typically receive just a portion of the awards. Meanwhile, investors and others keep almost half of any judgments in cases they win.8 In some cases, investors have earned up to a 30% return on their investment.9 That profit margin is three times the average stock market return.10
 
At the end of the day, injured parties can be left with less money – sometimes substantially less – than if they had settled their claim and had their injuries paid for directly without attorneys or funders involved.
 

Reforming the System

When someone is responsible for an accident, the legal system aims to make those injured in the accident whole for their damages and injuries. The system does not aim to be a profit-making opportunity for investors, which is exactly what third-party litigation funding does. When we allow verdicts to be treated like a commodity market, it has a bad ripple effect on society and the economy.
 
Legal system abuse reform can eliminate some of the excessive costs these lawsuits generate. The Hartford supports and works closely with several organizations that are calling for greater transparency and accuracy in legal advertising. We’re also advocating for increased transparency in third-party litigation funding, as we recently did in Indiana where legislation passed that will limit foreign investments in lawsuits.
 
Legal system abuse reform isn’t merely an insurance issue. It’s a broader societal issue that desperately needs reform, especially since we all end up paying for the increase in costs.
 
For more insight on the latest industry trends, read our 2024 Risk Monitor Report.

Why Legal System Abuse Reform Matters

Legal system abuse reform could help reduce the hidden costs of lawsuits and help consumers save money. Regulations on who can fund litigation can help prevent private investors, including foreign firms and countries, from profiting off the American court system.

 
Legal System Abuse Costs are High
Legal system abuse increases the cost of the tort system, where people sue for injuries and damages. Tort costs were $443 billion in 2020, which equates to $3,600 per American household.1
That's the same amount as:
yellow car
{[#0]} meses
of car payments2
o
bag of groceries
7+ months
of groceries3
o
standard American household
2½ months
of mortgage payments4
'Nuclear Verdicts' are Only Part of the Problem
graphic representing nuclear verdict dealing with product liability, auto accidents, and medical liability
Excessive jury awards of $10 million or more are called "nuclear verdicts."
The median nuclear verdict increased 27.5% between 2010 and 2019, far outpacing inflation.5
Most nuclear verdicts deal with insurance-related issues such as product liability, auto accidents, and medical liability.6
nuclear verdict inflation
The increased verdicts act like a form of inflation, increasing prices.
It's not just nuclear verdicts that add costs. When excessive verdicts are seen as normal and common, jurors are more likely to inflate awards of all sizes.
Investments, Not Justice
Hedge funds and other third parties fund lawsuits, even though they have nothing to do with the cases. They invested an estimated $22 billion worldwide in 2023 on litigation, mostly in the U.S.7
¿Por qué? Litigation investors see courts like a stock market.
legal system abuse graphic
legal system abuse reform
Those investments helped lawyers spend $1.4 billion in 2021 on ads convincing people to sue.8 In return, investors get a portion of any future settlements and judgments. Lawsuits have become a big business.
Who Really Benefits?
Jury awards aren't truly big paydays for plaintiffs, who only get about half of any awards.
broken money graphic
47% goes to third party investors and others
53% of eventual awards go to litigants9
investor profit growth graphic
Meanwhile, third parties make up to 30% return on their investment.10 That's 3x more profits than they would have made in the stock market.11
Reforming the System
The Hartford is advocating for fairness.
We've supported and advocated for legislation throughout the U.S. to clamp down on misleading attorney ads and problematic litigation techniques. And we continue to focus on other legal system abuse reforms, such as absolute transparency in third-party funding so our courts and the public can see who's really behind these lawsuits.
The Hartford advocates for absolute transparency in third-party funding
 
1 "Tort Costs in America: An Empirical Analysis of Costs and Compensation of the U.S. Tort System," U.S. Chamber of Commerce Institute of Legal Reform, Nov. 22, 2022.
2 Based on a monthly payment of $726. "The Average Car Payments for New and Used Cars in 2024," Adam Palasciano, NASDAQ, January 21, 2024.
3 Based on an annual food budget of $5,703. "Consumer Expenditures - 2022," Bureau of Labor Statistics, September 2023.
4 Based on an average monthly mortgage payment of $1,427. "Average monthly mortgage payment," Andrew Dehan, Bankrate, January 2024.
5 "Nuclear Verdicts: Trends, Causes, and Solutions," U.S. Chamber of Commerce Institute of Legal Reform, Nov. 22, 2022.
6 Ibid.
7 "Revisiting The Impact Of Litigation Finance on U.S. P&C Insurers," Evercore ISI, March 26, 2024.
8 "Legal Services Advertising Spending - 2017-2021," American Tort Reform Association, Feb. 22, 2022.
9 "Tort Costs in America: An Empirical Analysis of Costs and Compensation of the U.S. Tort System," U.S. Chamber of Commerce Institute of Legal Reform, Nov. 22, 2022.
10 "Considering Paths to Disclosure of Third-Party Litigation Financing," Michael L. Zigelman and Kristina I. Duffy, Reuters, Feb. 22, 2023.
11 "What is the Average Return on the Stock Market," Nerd Wallet, Mar. 4, 2024.
 
 
 
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1 “Revisiting the Impact of Litigation Finance on US P&C Insurers,” Evercore ISI, March 2024.
 
2 “Study: Trial Lawyers Spent $1.4 Billion on Advertising in 2021,” American Tort Reform Association, February 2022.
 
3 “Historically Low Faith in American Institution Continues,” Gallup, July 2023.
 
4 “Social Inflation,” National Association of Insurance Commissioners, August 2023.
 
5 "Nuclear Verdicts: Trends, Causes, and Solutions," U.S. Chamber of Commerce Institute of Legal Reform, November 2022.
 
6,7,8 “Tort Costs in America: An Empirical Analysis of Costs and Compensation of the U.S. Tort System," U.S. Chamber of Commerce Institute for Legal Reform, November 2022.
 
9 “Considering Paths to Disclosure of Third Party Litigation Financing,” Reuters, February 2023.
 
10 “What is the Average Stock Market Return,” Nerd Wallet, March 2024.
Steve Deane
Steve Deane
Chief Claims Officer, The Hartford