In a recent op-ed in the Wall Street Journal, Chubb’s CEO Evan Greenberg and Marsh McLennan’s CEO John Doyle highlight the urgent need for litigation reform, particularly third party litigation funding.
The piece argues that this funding mechanism has transformed tort litigation into an investment scheme, driving up insurance costs for businesses and consumers while allowing hedge funds and foreign investors to profit from lawsuits at preferential tax rates.
Last week, the US Senate considered a provision that would have taxed these third-party funders more fairly, but it was ultimately dropped from the final budget package.
Greenberg and Doyle expressed their disappointment over this legislative setback, stating that “this was a missed opportunity,” especially considering the rapid growth in the volume of litigation.
“Cases are becoming more expensive to resolve, and people and businesses everywhere are footing the bill. As the leaders of Chubb and Marsh McLennan, we see the real costs of this hidden tax every day through our customers,” the executives noted.
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They argue that this perpetuates a system where the pursuit of investor returns can overshadow the core principles of justice and fairness in legal proceedings.
The consequence, they warn, is a continuous upward pressure on insurance premiums, placing a financial burden on people and businesses alike.
“Common commercial auto accidents that once led to $1 million jury awards now
routinely produce awards of $10 million and can go as high as $100 million, encouraging
lawyers to pursue more cases. The rising cost and volume of litigation drives up the price of insurance, meaning truckers pay more to own and operate vehicles, households pay more for the food truckers deliver to grocery stores and people are discouraged from starting businesses,” Greenberg and Doyle commented.
Adding: “The number of cases with awards exceeding $100 million has risen 400% in a decade, according to the US Chamber of Commerce. Tort costs impose a $529 billion annual tax on economic activity, about $4,207 per American household, or 2.1% of gross domestic product. Small businesses pays about half of this, and the costs are growing rapidly—7% annually— which feeds inflation.
“Drive down any highway and you’ll see the litigation feeding frenzy on billboards. Lawyers are everywhere fishing for cases. In 2024 alone, the tort industry spent more than $2.5 billion on ads soliciting legal claims, according to estimates by the American Tort Reform Association.”
The CEOs acknowledge that while financial support can be crucial for pursuing legitimate claims, the influx of outside money has transformed injury litigation into an investment scheme, treating individual misfortunes like “penny stocks or subprime mortgage investments.”
The tax code worsens incentive issues, Greenberg and Doyle explained, with plaintiffs paying up to 37% tax on some awards, while US litigation funders pay a lower 23.8% capital-gains tax. Foreign investors sometimes pay no tax.
“The tax proposal that died in the Senate could have helped level the playing field by making funders pay as much as actual injured parties for their gains. We still need tax changes. We also need basic transparency and an emphasis on pro-consumer reforms at federal and state levels,” they highlight.
Concluding: “Chubb is looking carefully at our relationships to make sure that the people and companies with whom we do business aren’t helping to fuel the problem. Likewise, Marsh has refused for several years to work on litigation insurance with these litigation funders.”
“This problem is going to take time to fix, state-by-state and issue-by-issue. We see some progress. But it will take concerted and sustained effort from the entire business community to tame this beast.”
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