Russ Johnston, Nationwide’s President of Commercial Lines, said during a September 9 episode of the Insurance Information Institute’s podcast that Nationwide is trying to protect its customers from a system of "legal abuse" in the form of third-party litigation funding (TPLF).
"These are investors who are investing in the potential loss outcome of a liability claim and take profits from that, right," said Johnston. "So our customers are having to deal with what I'll call a very sophisticated counterparty to be able to handle that. And we're a protection company. One of the ways I like to frame that is, we're trying to protect our customers from what is a very, very sophisticated legal abuse system in the United States and help them navigate that in a meaningful way."
Johnston said during the podcast that investors use TPLF as a way to make money off lawsuits, but the practice is harming small and medium-sized businesses, which do not have the same funding to fight those lawsuits.
According to the National Association of Insurance Commissioners, TPLF is having an "outsized effect" on social inflation. The practice results in higher premium costs for all insurance policyholders.
Munich Re US and the American Property Casualty Insurance Association (APCIA) released the results of a survey about Americans’ perceptions of the U.S. legal system. According to a press release, the survey found that 59% of respondents were unaware of TPLF, through which investment firms and hedge funds "secretly" finance lawsuits in exchange for a percentage of the settlement or awards. Eighty-eight percent of respondents said they believe full transparency around all parties with financial stakes in lawsuits should be required.
In July, Congressman Darrell Issa, chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, introduced a discussion draft of the Litigation Transparency Act of 2024. According to a press release, this legislation would require TPLF agreements in civil lawsuits to be disclosed at the onset of the case. "This legislation is a breakthrough measure that will target serious abuses in our litigation system and achieve long-overdue transparency," Issa said. The press release also noted that current civil litigation is often funded by commercial lenders, hedge funds, and sovereign wealth funds that operate through shell companies.
Prior to joining Nationwide in 2021, Johnston was CEO of QBE North America. According to Nationwide’s website, he has also previously served as COO of AIG’s U.S. Commercial Business, President of Casualty Americas, CEO of AIG Environmental and President of AIG Risk Management.