“In Canada, litigation funding remains a speculative financial industry that is largely unregulated. Left unchecked, this could impact Canada’s property and casualty commercial insurance market and potentially affect the cost of commercial insurance,” the IBC said in a release.
The IBC commissioned law firm Dentons LLP to research emerging trends in legal practices in both Canada and the United States that are placing pressure on commercial insurance claims.
In its report, Dentons noted that it expects litigation funding to become more prevalent in Canada in the next five years and its continued unregulated use would result in increased social inflation if no checks are put in place.
“Law firms are increasingly using third-party litigation funding to pay to pursue claims that would likely not be pursued otherwise,” said Liam McGuinty, vice-president, strategy at IBC.
He added that insurance consumers ultimately foot the bill for legal abuse.
“Regulatory amendments that restrict litigation funding are needed because the practice no longer promotes access to justice, as was initially intended,” the release noted.
According to a November 2024 report by the U.S. Chamber of Commerce, lawsuits in the United States cost 2.1 per cent of GDP or US$4,207 per U.S. household.
Besides growth in litigation funding in Canada, Dentons also found that class-action litigation has significantly increased across the country and was likely fuelled by an expansion in aggressive legal advertising that encourages Canadians to launch lawsuits.
If you have any information, story ideas, or news tips for Law360 Canada on business-related law and litigation, including class actions, please contact Karunjit Singh at karunjit.singh@lexisnexis.ca or 905-415-5859.