Consumer Legal Funding has nothing to do with Tort Reform

Most of us learn at a young age that you can’t fit a square peg in a round hole. But some people still try.

In this case, the square peg is consumer legal funding, a vital tool that helps working-class people who have likely been in auto accidents that are not their fault pay their everyday bills—car loans, rent, mortgages, utilities—while awaiting fair settlements with insurance companies. The round hole is tort reform.

Tort reform efforts in the U.S. have always focused on issues like outsized awards and unreliable evidence. Now, however, with the backing of the multibillion dollar insurance lobby, the U.S. Chamber of Commerce is using tort reform as a smokescreen to advance an agenda that has nothing to do with justice or the U.S. business climate.

In every corner of the country—from Arizona, Indiana, Missouri, to New Jersey, and Arkansas—the Chamber and Big Insurance are lobbying to regulate consumer legal funding so harshly it would eliminate the product and leave thousands of people without a crucial option—sometimes their last good option—for keeping their heads above water during tough financial times.

These efforts are in the name of tort reform, but legal funding has nothing to do with tort reform. Why?

First, legal funding involves only preexisting cases. Second, the vast majority of consumer legal funding cases are about auto accidents. They are light years away from the multi-million dollar, multiple-plaintiff class action suits that have sparked calls for tort reform. The average funding amount given to customers of the largest consumer legal funding company is $1,700. And none of the funding ever goes to attorney fees, court costs, or any other costs of litigation. People use the funds to keep their lives afloat until a fair settlement is reached.

Legal funding has been proven time and again to actually serve justice and the court system. In Arizona, for example, personal injury claims have decreased since legal funding companies began doing business there. And a study from Vanderbilt University found that, if anything, legal funding speeds up fair settlements.

Finally, the last thing legal funders want to do is provide funding to people with frivolous lawsuits. Legal funding companies are paid only when cases are successfully settled. They have an economic incentive to steer clear of frivolous lawsuits.

So if it’s clear legal funding has nothing to do with tort reform, then why is Big Insurance claiming it does? Because big insurance companies have an economic incentive to pay as little as possible on claims. Their profits go up when cash-strapped accident victims settle quickly for far less than the fair value of their claims.

The U.S. Chamber of Commerce and Big Insurance can keep trying, but this square peg of consumer legal funding will never fit in the round hole of tort reform. Tort reform has absolutely nothing to do depriving working class Americans the ability to pay their home, grocery, car, and light bills when they’ve been injured.

By Eric Schuller President, Alliance for Responsible Consumer Legal Funding