With inflation, a higher cost of living, strained budgets, and job market instability, today's consumers are more price-sensitive than ever. One of the key drivers of rising costs in consumer service industries, such as insurance, is abuse of the legal system.
When the judicial process is unfairly manipulated to generate profit through excessive or unwarranted litigation, the financial fallout extends well beyond the courtroom. With insurance companies forced to spend more defending against these claims, losses are driven up and, therefore, premiums. The result is an inequitable system that places consumers, businesses and the broader U.S. economy at the forefront of absorbing these escalating costs, often out of the public eye but deeply felt in monthly insurance costs.
What is Legal System Abuse and Third-Party Funding?
Legal system abuse is the misuse of laws and judicial processes to increase litigation for profit, often through harassment, control or financial exhaustion and for purposes other than justice. When left unregulated, these practices can drive up costs for consumer services, such as insurance. Defending against these claims increases insurer losses, which in turn drives up premiums for policyholders.
Legal system abuse can include several facets, such as third-party litigation funding, fraudulent claims, exaggerated damages, and deliberately enacted practices to increase costs, delay settlements, and inflate verdicts. Third-party litigation funding is the broad term for providing money to a party to pursue a potential or filed lawsuit in return for a portion of the damages or settlement awarded by the court. Compensation of this nature is often provided by hedge funds, investment firms, individual investors or foreign entities. Since the third-party funders back most, if not all, of the legal expenses associated with litigation, plaintiffs have minimal risk in bringing their claims to court, whether merited or not. According to its 2024 Litigation Finance Report, litigation finance firm Westfleet Advisors disclosed $16 billion in third-party litigation funding (TPLF) assets under management.
This power dynamic puts pressure on insurance companies that are defending against these claims to settle them out of court to avoid trial expenses and drawn-out legal proceedings, even if the claims lack legitimacy.
How Does Legal System Abuse Affect Consumer Finances?
In November 2025, the Independent Insurance Agents & Brokers of America (the Big "I") released a national survey of consumers ages 25 and older who have home, auto or business insurance. It found that 64% of respondents were concerned that excessive lawsuits increase their insurance premiums. According to the survey, 81% believe that the legal system is used in ways that unfairly drive up insurance costs. In addition, eight in 10 (80%) also felt that their premiums would increase due to excessive lawsuits, even if they had never filed a claim themselves.
Consumers' concerns are well-founded. According to A Consumer Guide: How Legal System Abuse Impacts You, released in June 2025 by Triple-I and Munich Reinsurance America (Munich Re US), legal system abuse has resulted in $6,664 in added annual costs for the average American family of four. The excessive litigation prompted by the abuse has cost the U.S. economy 4.8 million jobs and $160 billion in annual tort costs for small businesses.
How Does Legal System Abuse Directly Affect Insurance Losses and Premiums?
Recent findings suggest that legal system abuse drives costs to rise above typical economic inflation rates, ultimately leading to higher prices for average insured Americans. In October 2025, the Insurance Information Institute (Triple-I) and Casualty Actuary Society (CAS) released a report showing that legal system abuse and related litigation trends drove liability insurance losses up by more than $230 billion over the last decade, a figure well over what can be attributed to economic inflation alone.
According to the report's key findings, legal system abuse, inflation-increased losses and defense and cost containment (DCC) for personal auto liability insurance increased by $91.6 billion to $102.3 billion. Commercial auto liability rose by $52 billion to $70.8 billion, property liability by $4.6 billion to $4.8 billion and other liability insurance by $83.4 billion to $103.3 billion (totaling $281.2 billion).
A separate Triple-I report published in September 2025 found that, from 2014 to 2023, an increase in motor vehicle tort lawsuits resulted in $42.8 billion in losses for insurance companies. Data from these findings underscore how litigation dynamics directly influence insurance losses. While the datasets vary, Triple-I's motor vehicle report supports the claim that roughly one-third of "increasing inflation" in auto vehicle insurance losses is due to legal system abuse. These actions, in tandem with mounting legal system pressures, are directly contributing to rising insurance premiums, meaning families are paying more for their coverage at the end of the day, regardless of whether they have filed a claim.
What Can Be Done to Fix an Unfair System?
According to the 2025 report from Big I, 88% of respondents stated that reducing unnecessary lawsuits is important for controlling insurance costs. In addition, 84% reported that they would support reforms if certain legal practices were making their insurance more expensive.
To do this, federal and state reform of tort law and third-party litigation funding must be implemented. But bringing about change to the judicial system is not an easy feat and requires the collaboration of many stakeholders working in tandem toward reform. When asked in the Big "I" survey, a majority (55%) of consumers agreed that the state and federal government should spearhead efforts to address the issue. Many respondents also pointed to insurance companies (34%) and courts (33%) as playing important roles in bringing about reform.
Legal system abuse is a growing financial concern that affects everyday consumers, businesses and the broader insurance industry. Without the necessary intervention to reform tort law, provide oversight of third-party financing, and raise public awareness of these practices, insurance costs will continue to rise, outpacing inflation and putting even more financial strain on American families. Recent data has revealed that consumers are signaling that they want a more just, accountable system. To do this, government officials at the state and federal levels will need to work hand-in-hand with insurance companies and the court systems to bring about change. By continuing to spread information about these practices and to advocate for balanced reform, we can help ease the financial burden on today's policyholders and bring greater transparency and justice to this system.
