This article was written with the assitance of AI and edited by Angela Sabarese.
In a recent CLM webinar, Rebecca Fozo, Zurich North America, and Pat Eckler, Freeman Mathis & Gary, LLP, discussed how third-party litigation funding (TPLF) is fundamentally transforming the American legal system—and not for the better, the speakers opine.
The Impact of TPLF
The webinar explored how external investors, including hedge funds and private equity firms, are increasingly financing lawsuits and even attempting to own law firms outright. Fozo explained that TPLF involves non-recourse investments in litigation, where funders only profit if cases succeed. The impact on the insurance industry alone is staggering: "An estimate reveals that the five-year cost is likely between $13 billion and $18 billion from 2024 to 2028."
Fozo illustrated how these arrangements often harm the very plaintiffs they claim to help. In one example, a plaintiff received $27,000 in funding for a slip-and-fall case that settled for $150,000, but after interest, principal, and attorney's fees, walked away with just $11,000.
Ethical Considerations
Eckler focused on the existential threat to legal ethics, particularly how Arizona's elimination of Rule 5.4—which prohibits lawyers from sharing fees with non-lawyers—has opened the floodgates. He shared a powerful quote from Judge Maldonado regarding litigation funder Burford Capital: "Having turned the courtroom into a trading floor and calculated that continued litigation was more profitable than settlement, Burford rested total control over the settlement."
The speakers emphasized that major litigation funders like Burford are explicitly pursuing law firm ownership as their primary growth strategy. As Eckler warned, "They're not hiding what they're intending to do. They want to own the law firms."
Both speakers called for increased transparency, disclosure requirements, and legislative action to protect lawyer independence and ensure the civil justice system serves plaintiffs—not investors.