Canadians are being urged to file suits due to strong legal marketing
Third-party litigation funders are profiting off lawsuits that make it to Canadian court, according to the "Emerging Trends in Canadian Commercial Liability Insurance Market" report published by the Insurance Bureau of Canada in partnership with Dentons Canada LLP.
According to Liam McGuinty, IBC's vice president of strategy, law firms are engaging litigation funders to finance claims "that would likely not be pursued otherwise." He highlighted the lack of litigation funding regulation in Canada.
"Competitive insurance markets work best for consumers when they are supported by clear legal frameworks and efficient regulatory systems. In Canada, litigation funding remains a speculative financial industry that is largely unregulated," he said in a statement. "Left unchecked, this could impact Canada's property and casualty commercial insurance market and potentially affect the cost of commercial insurance."
Dentons noted that in Canada, liability pressure is largely driven by the same litigation trends as in the US though to a lesser extent. As per the US Chamber of Commerce, lawsuits in the US cost 2.1 percent of US GDP (US$4,207 per US household).
Additionally, a boost in aggressive legal marketing urging Canadians to file suits has contributed to a considerable rise in class action litigation throughout Canada.
Dentons recommended that governments implement regulatory amendments limiting the use of litigation funding in courts, restricting its application as an investment tool through which large financial firms profit via the court system.
"Insurance consumers ultimately foot the bill for legal abuse. It's important to have a legal framework that addresses civil wrongs and provides remedies for individuals who have been harmed by the actions of others. But as we're also seeing in the United States, there are weaknesses in the current legal systems that are ripe for exploitation," McGuinty said in a statement.
The IBC commissioned Dentons to study emerging trends in US and Canadian legal practices that are putting pressure on commercial insurance claims.
