Chubb and Marsh CEOs advocate for taxing litigation funders in joint op-ed
(The Insurer)— Chubb and Marsh McLennan CEOs Evan Greenberg and John Doyle said third-party litigation funders should be taxed on the income they derive to curb the spike in litigation costs in an opinion piece for the Wall Street Journal.
"Our tort system plays an important social role in providing fair compensation to injured parties who've been wronged," they wrote.
"With so much money at stake, however, tort litigation has morphed into an industry that extracts rent from the legal system far beyond its intended social good."
The insurance industry supported a proposed tax on TPLF and foreign litigation funders through the Big Beautiful Bill, or the budget reconciliation package that was signed by U.S. President Donald Trump on July 4.
While the proposal to impose a tax at the rate of 40.8% on any third party to such civil action who receives funds under a litigation financing agreement passed the House of Representatives, it failed during the Senate vote when the Senate Parliamentarian determined that it did not meet the Byrd Rule, a gatekeeping device that aims to prevent reconciliation measures from being used for policy changes unrelated to the budget.
Greenberg and Doyle called the loss a "missed opportunity" in their op-ed.
"Common commercial auto accidents that once led to $1 million jury awards now routinely produce awards of $10 million and can go as high as $100 million, encouraging lawyers to pursue more cases," they said.
The number of cases with awards exceeding $100 million has risen by 400% within a decade, according to data from the U.S. Chamber of Commerce, with the spike from tort litigation feeding into inflation, they said.
"We appreciate that without financial support, some people might not be able to pursue legitimate claims," they wrote.
"That sensible activity, however, has turned into something else. Outside money has turned injury action into an investment scheme that treats individual misfortunes like penny stocks or subprime mortgage investments."
They said that litigation funders encourage lawsuits to extract big investment returns for themselves, while shortchanging plaintiffs, who pay tax on some awards at an ordinary income rate of up to 37%.
Generally, damages received for non-physical injury, such as emotional distress, defamation and humiliation, although generally includable in gross income, are not subject to federal employment taxes, while settlements for lost wages, emotional distress, punitive damages, and other non-physical claims are taxable, according to the Internal Revenue Service.
Chubb is looking into their relationships to "make sure that the people with whom we do business aren't helping to fuel the problem," they said in the op-ed. "Likewise, Marsh has refused for several years to work on litigation insurance with these litigation funders."
Greenberg and Doyle urged the business community to "tame this beast," and said it would take time to fix on a state-by-state basis.
