Canadian Underwriter

Opinion: Why the industry is wrong about litigation funding

November 12, 2020   by Paul Rand, Omni Bridgeway

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Litigation funding provides companies and individuals with an important strategic tool. But a few leaders in the insurance industry warn us to “watch out” for litigation funding. They claim it could “significantly raise insurers’ costs.”

Good news: They’re wrong.

Writer Carl Sandburg said, “If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell.”

In the article, Watch out for litigation funding in Canada, industry execs warn, Bernard McNulty, chief agent of Canada for Allianz Global Corporate & Specialty, sounded like he was table pounding.

The reason litigation funding is growing in popularity is that it serves many different strategies. Think of it as a form of project finance for disputes. It is a risk transfer mechanism. It unlocks capital for companies by monetizing their legal assets. It funds judgement collection efforts. It helps innovative legal departments manage costs. And, a segment of litigation funders support personal injury claims.

Litigation funding is also being put to work by some insurers — for example, in pursuit of subrogated claims. It can help lower costs.

Let’s consider three points about litigation funding that deserve more attention.

First, the litigation funding market is not homogenous. There are consumer funders and commercial funders. They involve different players, different approaches and different clients. A discussion about financial services in which Royal Bank of Canada and Money Mart are treated as interchangeable would be considered naive. This is equally true with litigation funding.

Second, the claim that litigation funding is causing social inflation is far from clear. In another article, Matt Wolfe, president of Aon Reinsurance Solutions Canada, says, “We don’t necessarily know what it is” about the cause of social inflation and speculates that it could be a generational issue.

So, the cause of social inflation could be related to demographics. It could also be a by-product of corporate scandals, climate change, nuclear jury awards, onerous regulatory regimes, escalating care costs or a multitude of societal reckonings, such as the #MeToo movement.

Perhaps social inflation is a buzzword in search of an explanation?

And third, the tone adopted by a few in the insurance space hints at a looming wave of claims stemming from litigation funding. Should Canadians be wringing our hands?

Being realistic, the answer is no.

Litigation funders are very cautious investors. Most litigation funding is provided on a non-recourse basis. If a case fails, a funder’s capital disappears. Therefore, funders are highly selective and focused on meritorious claims.

Take my firm as an example. We are a public company with over 30 years of experience building the industry. We are in 18 cities across 10 countries. Our team in Canada is comprised of former Bay Street lawyers, three of whom clerked at the Supreme Court of Canada. The risks we take on are assessed with extreme care.

So, is litigation funding something to watch out for in Canada? Our judges say it promotes access to justice, which is fundamental to the rule of law and a stable economy. I suggest we keep an eye on efforts to undermine that.

Paul Rand is the Canadian chief investment officer for commercial litigation funder Omni Bridgeway. Before joining the company, he practiced law with two leading firms and in the legal department of a major Canadian bank.


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