As the 2023 year begins, so does the 135th General Assembly. The two legislative chambers have organized their leadership teams, assigned committee chairs, and are preparing for the biennial operating budget. Bills not passed last year get reintroduced and begin the legislative process once again. One of those being Senate Bill 19, introduced by Senator Steve Wilson, to reform the process of third-party litigation financing.
In our industry, the most common form of third-party litigation funding occurs when a company advances money to a plaintiff in a lawsuit before it has concluded in exchange for the right to receive an amount of any potential proceeds. These cash advances are non-recourse meaning the consumer or plaintiff only has to repay the company if they realize any proceeds from the lawsuits. While the consumer is not on the hook for repayment if they lose the lawsuit, these advances are not subject to interest rate caps and other common consumer protections.
The presence of a third-party funder in a lawsuit is problematic in Ohio because there is a lack of transparency since current law does not require any financing agreement to be disclosed to other parties in the litigation. Non-disclosure of financing agreements enables third party litigation financing companies to conceal their involvement in a lawsuit. The existence of this secretive party leads to litigation based upon speculation of who has an interest in a lawsuit rather than all parties having actual knowledge of who is involved in the litigation – which is a bedrock principle of America’s civil justice system and hampers the ability of other parties to develop their litigation strategy.
Third-party litigation financing also introduces incentives that prolong litigation and lead to more speculative lawsuits.
As drafted in the legislation, the disclosure of financing agreements will remove the secretive party in the litigation. This simple step creates parity in litigation since insurance agreements – which often dictate the value of a claim – are automatically disclosed during discovery.
The bill will also accomplish the following:
- Require registration of companies that engage in non-recourse civil litigation advancements.
- Creating greater transparency about who has an interest in the outcome of a particular lawsuit aids the ability of all parties to develop litigation strategy and helps evaluate what a claim is worth.
- Limiting the interest rate that can be charged on advances, prohibiting financing agreements from lasting more than three years, and requiring companies obtain a corporate surety bond assures only well-established and financially stable litigation financiers can offer their product in Ohio.
Along with the Ohio Alliance for Civil Justice and U.S. Chamber Institute for Legal Reform, the Ohio Chamber of Commerce and OII are advocating for the passage of this legislation in order to curb the practices found in the litigation funding arena.
If you have any questions, please reach out to Lauren Reid at Lauren@ohioinsuranceagents.com.