The letter, sent to Senator Thom Tillis and Representative Kevin Hern, expressed the entities’ endorsement of H.R. 3512, also known as the Tackling Predatory Litigation Funding Act, introduced by Hern in May with Tillis heading a companion bill in the Senate. (Credit: Alex/Adobe Stock)
A coalition of insurance companies and industry trade groups have signed a letter in support of proposed U.S. tort reforms that they say would close a tax loophole for third-party litigation financing.
The 40-plus entities to sign onto the letter included Chubb, Marsh McLennan, CNA, Allstate, Liberty Mutual, The Hartford, Travelers, State Farm, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, the National Association of Mutual Insurance Companies, the American Property Casualty Insurance Association (APCIA) and the Reinsurance Association of America.
The letter, addressed to Senator Thom Tillis and Representative Kevin Hern, expressed the entities’ endorsement of H.R. 3512, also known as the "Tackling Predatory Litigation Funding Act," introduced by Hern in May with Tillis heading a companion bill in the Senate.
The proposed bill would amend Subtitle D of the IRS Code of 1986 to impose a tax on the profits earned by third-party litigation financiers.
The coalition’s letter to the lawmakers reads in part:
“TPLF [third party litigation funding] has exploded in recent years as private investment funds chase outsized returns—often averaging 25 percent—by financing meritless or purely speculative claims. By the end of 2024, investors had committed some $16.1 billion to U.S. commercial litigation. These arrangements not only drive-up legal costs for businesses (costs ultimately borne by workers, consumers, and shareholders) but also invite foreign capital—sometimes from sovereign wealth funds—to treat our courts as a low-risk casino, profiting at the expense of American enterprise.”
The coalition states that current tax code doesn’t address the investment returns from litigation funding, which “encourages investors in litigation to claim their returns qualify as capital gains and enables foreign investors to avoid U.S. tax obligations.”
Meanwhile, they claim plaintiffs and their attorneys are left to pay the normal income tax rate for their litigation awards, which can reach upward of 37%. They believe this legislation would help end this inequity, and make note of an estimate from the Joint Committee on Taxation that this change would raise around $3.5 billion over ten years that could be used to “fund other priorities in the pending reconciliation package that would increase domestic economic growth and job creation.”
The APCIA also released a separate statement from Senior Vice President of Federal Government Relations Sam Whitfield in support of the Tackling Predatory Litigation Funding Act.
“APCIA commends Senator Thom Tillis and Representative Kevin Hern for introducing the Tackling Predatory Litigation Funding Act. This critical legislation would establish a specific tax that treats profits gained by third party litigation funding (TPLF) investors the same way current tax laws treat awards received by actual victims,” Whitfield said. “When investors in TPLF receive the proceeds of their investment from a lawsuit funded by TPLF they are able to claim preferential tax treatment. Domestic investors pay a capital gains tax, while foreign investors most often pay no U.S. tax or at best only the capital gains tax rate. Changing the tax treatment of all TPLF investors will close massive loopholes in the system that allow people with only a financial interest in the case to skirt paying U.S. taxes on their proceeds from the case.”
“Importantly, this is a tax on activity, not entity, therefore litigation funded by 501(c)(3) and similar organizations in pursuit of cause litigation are not impacted by this legislation,” he added.
If passed, the bill would tax third-party litigation financiers' profits at the highest individual income tax rate of 37% plus 3.8%.
Other non-insurance entities that signed the coalition’s letter included Johnson & Johnson, Tyson Foods, the U.S. Chamber of Commerce, Exxon Mobile and Bayer.
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