Private Equity's Hot New Investment: Suing Insurers

While legal system abuse has long been a problem for insurers, private equity and AI are taking the problem to a whole new level.


Several years ago, I took my daughters on a tour of Civil War battlefields so the younger one could search for ideas for her senior thesis. She came away with a great idea that helped her get an "A." I came away thinking: Holy smokes, there are a lot of personal injury lawyers in Alabama, Mississippi, Kentucky and Tennessee. 

It seemed that every single billboard in those states was an ad for a personal injury lawyer--and we saw a lot of billboards. With my antennae raised, I've seen ads for personal injury lawyers just about everywhere, ever since -- ESPN+ broadcasts of my Pittsburgh Penguins even do split-screens so they can show personal injury lawyer ads while the game continues. 

Is there really that much money floating around in personal injury law that they can make sure I see attorneys wherever I turn?


And that's not just an expanding version of an existing problem for insurers; the problem is morphing into a quite new sort of problem by drawing in the massive resources of private equity. Investing in lawsuits against insurance companies or in companies that facilitate those suits is becoming a standard investment type. PE companies invest in oil leases, farmland, manufacturing operations and... lawsuits against insurers.

So more lawsuits will be filed. Plaintiffs will be able to sustain them longer. Demands will be higher, and so will settlements. 

Unless insurers do something about them -- and a game-changer like a massive infusion of private equity demands a game-changer of a response.

Let's start with some data:

--Taylor Smith and John Burge write in a piece this week for ITL that EvenUp Law "has raised $65 million and has a valuation of more than $325 million. They use AI to craft demand packages for personal injury attorneys, including facts, damages, liability estimates and detailed special damage analyses.... EvenUp asserts that they drive up the value of claims by 30%.

"AI is being used by the plaintiff bar to pick the best cases and pick the best venues, right down to quantifying the impact of facing off against specific insurance companies.... A January 2024 Bloomberg Law article highlighted how AI will enable litigation funders to invest with greater precision and effectiveness, especially in smaller cases – a segment litigation funders have typically avoided."

--Wesley Todd writes this week that the term "nuclear verdicts" is becoming obsolete. Those verdicts are "merely" at least $1 million, when many verdicts now exceed $10 million -- which he calls thermonuclear verdicts. He estimates that insurers are paying about $75 billion in settlements each year. 

He writes that "the consequences of unfettered litigation are exemplified by events such as the world's largest personal injury firm filing an astonishing 25,000 lawsuits in a single week in 2023.... Business is so good that one $30 billion technology investment fund just purchased another litigation tech companyWall Street is deploying hundreds of millions of dollars to remove any obstacles to plaintiff attorneys acquiring as many claimants as possible."

--Our friends at Triple-I report that an investment yield of more than 20% is being generated by publicly traded and private third-party litigation funders, "transforming the legal landscape into an investment market."

The Triple-I says every American household pays an estimated annual “tort tax” that averages $3,621 and cites a 2021 study by the Perryman Group that found that legal system abuse resulted in the loss of 4.2 million jobs, $110 billion in government revenue and $429 billion in output in the U.S. each year.

How to respond?

The key change that seems to be needed is to become more like the plaintiff bar and to focus on settlement amounts, not process.

Yes, regulatory constraints force insurers to document everything they do and to be able to prove that they're treating all clients equitably, in some ways tying insurers' hands. But many don't seem to have even begun to change their thinking. 

Taylor and Bruge say, "For most commercial carriers, the negotiated amounts written on the settlement checks represent the largest expense for the company.... [But} the P&C Industry has focused nearly all technology on managing legal expenses, which only make up about 20% of total loss cost."

They add that insurers can use AI just as aggressively as the plaintiff bar does. 

"AI can help us quantify the economic risk of facing a specific plaintiff attorney or being in a specific venue," Taylor and Bruge write. "It can identify which attorneys take cases to trial and which do not. It can identify the verdicts they have obtained. [And], in the same way EvenUp Law prepares demand packages for personal injury attorneys, AI can assemble facts and negotiation points for claims professionals and defense attorneys."

A fundamental change in the thinking about litigation will take a lot of discipline, mental force and communication, communication, communication -- but realizing that you're staring down the barrel of an industry with trillions of dollars of assets should focus the mind.



P.S. My one brush with a potential personal injury lawsuit came many years ago, when I was cycling along the Palisades in New Jersey, just north of the Lincoln Tunnel. A driver didn't see me at dusk and turned left right in front of me. I was going a good 25mph -- young and fit, as I was -- and couldn't avoid her. I smashed into her hard enough that I put a dent in her car with my hip and another with my head -- later, when I took off my helmet, it came apart in more than a dozen pieces. I was knocked unconscious. 

But I came to the moment I hit the pavement and felt fine. The driver was mortified and very responsible. She gave me her insurance information and took down my name and contact information. After assuring her I was fine, I got back on my bike and rode the final five or six miles to my condo in Hoboken. 

Six months later, I got a call from her insurer, Allstate, to let me know they were getting ready to close the file but first wanted to make sure I was still okay. And good for Allstate. But just imagine if I'd said I'd been having headaches or muscle spasms, or was thinking of hiring a lawyer. That could have been a nice check.

But I hadn't once thought of the accident in those six months, and I was raised as an altar boy, Eagle Scout kind of kid, so it never occurred to me to invent symptoms. I said I was fine, and that was the end of it.

As it should have been.