Indiana, West Virginia Pass New Restrictions on Third-Party Litigation Financing

Efforts to rein in third-party litigation financing are on their way to becoming law in Indiana and West Virginia, a scorecard that is less than what business and insurance interests had hoped for this spring.

In Indiana, Gov. Eric Holcomb signed House Bill 1160, which aims to block foreign entities from funding lawsuits. It also bars parties involved in the litigation from sharing with financiers any information that a court has ordered sealed, and forbids finance firms from influencing the outcome.

Financing agreements will now be subject to discovery.

The bill passed with overwhelming support, with no dissenting votes in the House and only two in the Senate.

The American Property Casualty Insurance Association said the Indiana law would help promote a more transparent legal system.

“Requiring disclosure and discovery of funding by third parties involved in the litigation and to the courts is a critical step to restoring balance to the legal system,” Brooke Kelley, APCIA assistant vice president of state government, said, according to an AM Best report. “These common-sense guardrails around third-party litigation funding are necessary to facilitate litigation transparency and protect consumers and businesses.”

The law follows a bill signed last year that made third-party financing agreements subject to discovery.

West Virginia’s Senate Bill 850 would, if signed into law by coal company owner, Gov. Jim Justice, place a number of restrictions on lawsuit funding. The bill would bar financiers from:

• Offering commissions to attorneys and medical providers who refer consumers to a financing program.
• Advertising false or misleading information about its services.
• Referring consumers to specific attorneys or medical providers.

The investors in litigation also must provide copies of all financing contracts to consumers; and may not attempt to waive settlements or require arbitration in the legal dispute. Finance firms also must not assign or securitize a financing contract to another party, if the bill becomes law. Any violation of the law would make the financing contract unenforceable, the bill notes.

“A litigation financier may not charge a consumer who is a natural person an annual fee of more than 18 percent of the original amount of money provided to the consumer for the litigation financing transaction,” reads the bill, which was sponsored by state Sen. Charles Trump.

SB 850 passed the West Virginia state Senate in February and the House on March 9. It was sent to the governor March 12.

The APCIA, the U.S. Chamber of Commerce and others had urged more states to adopt similar legislation this year. At least 10 states, including Georgia, Florida, Ohio, Missouri, Iowa, Kansas and Oklahoma, saw bills introduced, according to a LexisNexis tally, but none of those have advanced.

Florida’s bill passed a key committee but did not survive beyond that in the session that ended March 9.