How Legal System Abuse Can Impact Your Insurance Premiums
Understanding how the legal system works is essential for both individuals and businesses. The system is designed to protect rights, promote fairness, and resolve disputes with integrity. When an issue arises, it can be taken to court, where a judge or jury reviews the facts and applies the law. Lawyers guide and represent those involved, helping them navigate the process. Having a basic understanding of how the system functions helps people make informed decisions and protect their rights.
Misuse of the legal system, through tactics like exaggerated complaints, unfounded lawsuits, and profit-driven third-party litigation funding, can slow the judicial process and increase costs for everyone. Exploitative cases consume time, money, and resources. Even complaints that are ultimately unsubstantiated, meaning there is not enough evidence to support what is being alleged, can require companies to spend time and resources investigating and responding. Those added expenses ultimately fall on consumers, who bear the cost as part of doing business. To put it more plainly, higher operating costs for businesses usually mean higher prices for consumers.
What are torts, and why do they matter?
A tort is the legal term for when one party’s actions cause harm or injury to another, for which the responsible party may be held liable. Torts include harm and injuries from accidents, negligence, intentional acts, or strict liability situations. Common examples include harm caused by car accidents, slip-and-fall incidents, or defective consumer products. The purpose of tort law is to provide a way for people to seek compensation for their losses and to hold those responsible accountable. Because tort cases can involve substantial payouts, they are a prime target for those attempting to exploit the legal system for financial gain.
What is legal system abuse?
Legal system abuse occurs when someone uses the courts in an unfair or exploitative way instead of resolving legitimate disputes. Examples include faking or exaggerating injuries, staging property damage, inflating repair or medical bills, or filing repeated or baseless lawsuits to pressure others. Legal system abuse wastes time, occupies resources, and creates unnecessary costs that ultimately affect consumers.
What is third-party litigation funding?
Third-party litigation funding (TPLF) is when an outside investor or funder finances legal costs for a party in a case. In return, the investor takes a portion of any settlement or award, aiming to make a profit from someone else’s legal dispute if the case is successful. Because investors take a share of any payout, plaintiffs usually receive less than the full compensation they might otherwise be entitled to. TPLF is often provided by hedge funds or investment firms, with some existing for the sole purpose of funding litigation. TPLF is most common in cases with the potential for large payouts, like class actions, which suggests that a funder’s involvement is primarily driven by the expected financial return.
Laws restricting TPLF are often limited, inconsistent, and indefinite, varying by state. However, some recent legislation reflects a shift toward reform, imposing stricter limits on these arrangements. Restrictions aim to address ethical concerns, ease rising litigation and consumer costs, and prevent speculative, profit-driven arrangements from overwhelming the legal system. They also seek to promote transparency and limit the control an investor can exert over a case, as well as address potential national security concerns and other broader risks.
How does legal system abuse affect insurance policyholders?
Insurance exists to protect individuals and businesses from a wide range of financial risks, which can involve significant costs. When an insured individual or business is sued in a tort case, their insurance company may defend them in court and, if the court rules against them, pay for damages or settlements. Because insurance companies assume these risks as a business, claims and payments are a normal and frequent occurrence.
Unfortunately, this creates more opportunities for third-party investors to exploit the legal system by financing cases against insurers for profit. Legal system abuse forces insurers to spend time and resources on investigations, legal defense, and other expenses, even for cases that are ultimately dismissed. The impact of such abuse is reflected in findings from the Alabama Department of Insurance’s Liability Insurance Coverage Data Call, which show that increased litigation activity and related costs correlate with higher operating costs for insurers and increased insurance premiums for policyholders. If legal system abuse continues to grow, insurance could become more expensive for many consumers, potentially leaving them without the coverage they need to manage everyday risks.
How can policyholders help keep premiums affordable?
As a policyholder, you play an important role in helping us protect your interests and keeping the claims process efficient. Here’s how you can make a difference:
Document incidents carefully: Take clear photos, videos, and notes after accidents or property damage to provide accurate evidence.
Keep records organized: Save receipts, repair estimates, medical records, and any related documents for easy reference.
Report claims immediately: Early reporting ensures we can review and resolve claims quickly and accurately.
Provide honest, complete information: Transparency helps us verify legitimate claims and prevents delays.
Ask questions: Understanding the process helps you feel confident and ensures nothing is overlooked.
Cooperate fully with investigations: Working with our claims team allows us to resolve claims efficiently while protecting your coverage.
How does Alfa® protect policyholders?
We work hard to protect our policyholders by taking several proactive steps:
Investigate claims: We carefully review all information, including photos, repair estimates, and other documentation, to ensure claims are resolved appropriately.
Fraud detection: We use targeted measures such as data analytics and fraud‑detection systems to help identify suspicious activity and address potential fraud early.
Maintain clear communication: We keep you informed throughout the claims process, so you know what’s happening with your claim.
Resolve claims efficiently: Our goal is for claims to be processed thoroughly and with minimal delay, so you can move forward with confidence.
Your Protection. Our Priority.
Legal system abuse impacts more than courts and insurers. It can drive up premiums and delay claims or limit coverage options for responsible policyholders. By staying informed and reporting claims honestly, policyholders help protect the integrity of the system. Together, insurers and policyholders can strive to maintain a claims process that is fair, efficient, and focused on those who truly need it. At Alfa, we are committed to handling claims responsibly and working to keep insurance as accessible and affordable as possible.
All coverages are subject to deductibles and policy limits. This is not an insurance policy. It is intended only to provide a general description of Alfa Insurance® and/or its product lines and services. An actual policy contains the specific details of the deductibles, coverages, conditions and exclusions. Your Alfa® agent can explain the policy and benefits and answer any questions you may have before you buy.