Third-party litigation funding (TPLF)

Petersen and Eton Park v. Argentina, New York federal court, September 15, 2023: $16.1 billion in damages for the 2012 takeover of YPF. Burford Capital had bought the rights to the case in 2015 from the Spanish Petersen bankruptcies. That is third-party litigation funding. A fund advances fees, experts and court costs in exchange for a share of whatever is recovered; if the case fails, the funder loses its stake. The model has reshaped civil litigation, particularly in the United States and the United Kingdom. Claimants with thin resources can now take on large corporations in complex cases, and the law firms running these matters have professionalized to the point of managing them as investment portfolios. For insurers the impact runs deep. Proceedings last longer, demands go up, nuclear verdicts become more likely, and claimants come in with superior procedural expertise, which creates an information asymmetry. Funding feeds social inflation directly and pushes the cost of general liability and D&O losses steadily upward. Funding also changes what drives frequency. For two centuries, the number of claims brought against a business tracked the number of people who at once held a grievance, knew their rights, had the means to act and tolerated the risk of failure, far more than the number of breaches committed. Those four conditions rarely came together, and the gap worked as a free filter whose effect observed claims experience never isolated. The funder leaves substantive law untouched and lifts that rationing: frequency then tracks the capital seeking a return in litigation, and becomes sensitive to the cost of capital. A fall in rates therefore mechanically raises the expected burden on liability exposures already written, with no error made about the materiality of the facts. Several European jurisdictions have started to regulate it, notably around the representative actions directive.