Recently, we wrote about the impact of nuclear verdicts on the commercial vehicle industry. If you pull the thread on these nuclear verdicts, you will soon discover a sinister growing phenomenon: third-party litigation financing (TPLF). This practice, where outside investors fund lawsuits in exchange for a portion of the settlement or award, is reshaping the legal landscape. While proponents argue that TPLF levels the playing field for plaintiffs, its impact on the trucking industry is profound and often detrimental.
What is Third-Party Litigation Financing?
TPLF occurs when an external financier provides upfront capital for a lawsuit, covering costs like legal fees, expert witnesses, and trial preparation. In return, the financier receives a percentage of the judgment or settlement, often a substantial one.
Though designed to help plaintiffs pursue justice, TPLF can create unintended consequences. By removing financial barriers, it can encourage lawsuits that might otherwise be deemed frivolous or excessive, targeting industries like trucking that are perceived as lucrative.
How TPLF Impacts the Trucking Industry
- Increased Legal Costs
TPLF often inflates the stakes of litigation. With financiers backing lawsuits, attorneys may feel empowered to pursue higher damages, knowing their resources are virtually unlimited. For trucking companies, this translates to higher defense costs, prolonged litigation, and more frequent settlements to avoid drawn-out battles. - Escalating Insurance Premiums
The rise in costly lawsuits affects insurance providers, who must account for the growing risk. In turn, trucking companies face soaring insurance premiums. According to the American Transportation Research Institute (ATRI), insurance costs have risen sharply, with TPLF playing a significant role in driving this trend. - Impact on Small Carriers
Smaller trucking companies, operating on tight margins, bear the brunt of TPLF’s effects. One major lawsuit can spell financial ruin for a small carrier, forcing closures and reducing competition in the industry. - Supply Chain Disruption
When trucking companies struggle or fail due to excessive litigation costs, the broader supply chain suffers. Delays, higher shipping rates, and reduced capacity affect businesses and consumers alike.
TPLF and Nuclear Verdicts
TPLF has contributed to the rise of nuclear verdicts—legal judgments exceeding $10 million. These awards often stem from emotionally charged cases where financiers encourage attorneys to push for exorbitant damages. While such verdicts aim to penalize negligence, they frequently result in disproportionate financial burdens on trucking companies.
What Can the Industry Do?
- Advocate for Transparency
Many TPLF agreements are not disclosed in court, leaving defendants unaware of the financial dynamics at play. The trucking industry can push for legislation requiring full transparency in litigation financing arrangements. - Promote Tort Reform
Advocating for caps on non-economic damages and other reforms can help mitigate the effects of TPLF-driven lawsuits. States like Texas and West Virginia have successfully implemented such measures, providing models for others to follow. - Enhance Safety Practices
Investing in advanced safety technologies and driver training not only reduces accidents but also demonstrates a commitment to public safety. This proactive approach can help counter the perception of negligence often leveraged in lawsuits. - Educate Stakeholders
Trucking associations and companies can work to inform policymakers, insurers, and the public about the adverse impacts of TPLF. Raising awareness is key to building support for meaningful change.
Third-party litigation financing poses a growing challenge for the trucking industry. While its intent may be to provide plaintiffs with access to justice, TPLF often creates disproportionate burdens on trucking companies. By advocating for transparency, pushing for tort reform, and enhancing safety measures, the industry can mitigate these impacts and ensure a fairer legal environment.
In a sector as vital as trucking, addressing TPLF is essential to safeguarding the industry and the economy it supports.