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The Rapid Growth of Third-Party Litigation Funding (TPLF) and Its Impact on Insurance Affordability

The commercial insurance landscape is being reshaped by an unexpected disruptor—Third-Party Litigation Funding (TPLF). While this industry has grown rapidly over the past decade, its implications for insurance costs, especially in sectors like commercial real estate, are becoming increasingly significant. Let’s explore what TPLF is, why it’s expanding, and how its growth affects insurance affordability.

What is Third-Party Litigation Funding (TPLF)? 

TPLF allows investors or entities to fund lawsuits in exchange for a share of the financial settlements or judgments. It originated as a way to level the playing field, providing plaintiffs who lack resources the means to pursue legal claims. Today, it has evolved into a multi-billion-dollar industry attracting private equity firms, hedge funds, and institutional investors. 

Why is TPLF Growing So Rapidly? 
  • High Returns for Investors: TPLF offers lucrative returns, often in the double or even triple digits, making it an appealing investment for firms seeking high-risk, high-reward opportunities. 

  • Broadening Access to Legal Action: TPLF isn’t limited to individual claimants anymore. It now extends to commercial lawsuits, class actions, and even international arbitration cases, amplifying the potential for high payouts. 

  • Increasing Litigation Activity: With more funding available, lawsuits have increased significantly. This has led to a rise in legal activity, especially in sectors like real estate, healthcare, and manufacturing. 

Nuclear Verdicts: A Growing Concern 

A nuclear verdict is a term used to describe exceptionally high jury awards in civil cases, often exceeding $10 million. These verdicts arise when jurors perceive egregious corporate negligence, misconduct, or lack of accountability. 

  • Why They Happen: Nuclear verdicts often stem from a combination of compelling emotional narratives, perceived injustice, and plaintiffs’ attorneys leveraging TPLF to build stronger cases. 

  • Impact on Insurance: The surge in nuclear verdicts has placed immense financial pressure on insurers. Large settlements drive up claims costs, forcing insurers to increase premiums to compensate. 

  • Notable Examples: The Greystar Tower Crane Collapse case is a prime example, where an $860 million verdict was awarded due to perceived negligence and lack of corporate accountability. 

Case Study: The Greystar Tower Crane Collapse Verdict 

Incident Overview 

On June 9, 2019, during a severe storm in Dallas, a tower crane owned by Greystar Development collapsed onto the Elan City Lights apartment building, killing Kiersten Smith, injuring others, and displacing hundreds of residents. Investigations revealed that the crane’s slewing brakes were locked, preventing it from pivoting with the wind, which led to the collapse. 

Legal Outcome 

In April 2023, a Dallas jury awarded over $860 million to Kiersten Smith’s family. The verdict highlighted Greystar’s negligence in failing to properly secure the crane, even with severe weather warnings issued in advance. 

TPLF Implications 

Although direct TPLF involvement in this case is unclear, similar high-stakes lawsuits often attract third-party funding. TPLF enables plaintiffs to pursue lengthy and expensive litigation, leveling the playing field against well-resourced corporate defendants. 

Key Takeaways 

This case demonstrates how nuclear verdicts can reshape legal strategies and significantly influence insurance costs, highlighting the importance of proactive risk management and specialized insurance solutions. 

The Impact on Insurance Affordability 
  • Higher Claim Costs: TPLF can lead to extended legal battles and higher settlements, increasing insurers’ claim payouts. 

  • Increased Risk Exposure: The expanded scope of litigation complicates insurers’ ability to predict risk accurately, introducing volatility into underwriting. 

  • Rising Premiums Across Sectors: Insurers are raising premiums to cover escalating legal costs, significantly affecting liability, property, and umbrella insurance policies for commercial real estate owners. 

What Can Commercial Real Estate Owners Do? 

While the growth of TPLF and nuclear verdicts may be out of your control, there are steps you can take to mitigate their impact: 

  • Work with Industry Experts: Collaborate with insurance professionals who understand the complexities of TPLF’s impact. Fidella’s team excels in helping commercial real estate owners navigate these challenges with strategic solutions that optimize coverage while controlling costs. 

  • Proactively Manage Risk: Regular property inspections, tenant vetting, and clear lease agreements can reduce liability exposure. 

  • Invest in Legal Defense Coverage: Certain insurance policies can help offset legal defense costs, ensuring you’re protected even in the face of protracted litigation. 

How Fidella Can Help 

At Fidella Insurance Agency, we pride ourselves on delivering exceptional customer experiences backed by deep industry expertise. We understand the ripple effects of TPLF and nuclear verdicts on insurance affordability. We specialize in crafting solutions that safeguard your assets without overburdening your budget. With competitive rates, comprehensive policies, and a strategic approach, we’re here to ensure your peace of mind. 

Conclusion 

The rapid growth of TPLF and the increasing prevalence of nuclear verdicts are reshaping the legal and insurance landscapes, creating challenges for commercial real estate owners. While they may increase costs, proactive strategies and expert guidance can help you navigate these complexities. Connect with Fidella today to learn how we can protect your properties and financial future in this evolving environment.  

Resources and References 

  • U.S. Chamber of Commerce Institute for Legal Reform 

  • Insurance Information Institute (III) 

  • National Association of Insurance Commissioners (NAIC) 

    • Regulatory insights on insurance and litigation-related risks. 

    • Website: NAIC 

  • Dallas Morning News 

    • Reports on the Greystar tower crane collapse and its legal aftermath. 

    • Website: Dallas Morning News 

  • Claims Journal 

    • Updates and analysis on major claims, litigation outcomes, and TPLF trends. 

    • Website: Claims Journal 

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