Third-party investors are using the Canadian court system to profit on lawsuits, according to a new report from global law firm Dentons LLP.
“Law firms are increasingly using third-party litigation funding to pay to pursue claims that would likely not be pursued otherwise,” said Liam McGuinty, Vice-President, Strategy, Insurance Bureau of Canada (IBC). “Competitive insurance markets work best for consumers when they are supported by clear legal frameworks and efficient regulatory systems. In Canada, litigation funding remains a speculative financial industry that is largely unregulated. Left unchecked, this could impact Canada’s property and casualty commercial insurance market and potentially affect the cost of commercial insurance.”
IBC commissioned Dentons to research emerging trends in legal practices in both Canada and the United States that are placing pressure on commercial insurance claims. The U.S. Chamber of Commerce recently put a price tag on the cost of lawsuits in the United States at 2.1% of U.S. GDP or $4,207 per U.S. household.
Dentons found that litigation trends driving liability pressure in the United States are, for the most part, the same as those in Canada, although to a lesser degree in this country than in the United States. In addition to the growth of litigation funding, Dentons also found that class action litigation has significantly increased across Canada, likely fueled by an expansion in aggressive legal advertising that encourages Canadians to launch lawsuits.
“Insurance consumers ultimately foot the bill for legal abuse,” said McGuinty. “It’s important to have a legal framework that addresses civil wrongs and provides remedies for individuals who have been harmed by the actions of others. But as we’re also seeing in the United States, there are weaknesses in the current legal systems that are ripe for exploitation. We hope this report provides some insight for governments and regulators on the need to stay on top of litigation trends in Canada and avoid the type of impact we’ve seen south of the border.”
The most efficient way to prevent the use of litigation funding in Canadian courts is for governments to take regulatory action, according to Dentons. Regulatory amendments that restrict litigation funding are needed because the practice no longer promotes access to justice, as was initially intended; it is now used as an investment tool that uses the court system to generate profits for large financial firms.
