In a self-serving and nonsensical blog that attempts to discredit the fledgling legal funding industry, the U.S. Chamber of Commerce tries to reclaim the title of champion of Free Markets. Instead, it proved the opposite. The average American will quickly find himself under a lot of financial pressure when he has been hurt by the actions of a reckless driver. He will confront medical bills, and a loss of income if his injury causes him to miss some work. Standing in the way of a fast and fair agreement about compensation for these losses will often be an insurance company. Responsible for the damage caused, the insurance company has incentive not to compensate for the damage either quickly or at fair value.
Before legal funding came along, the insurance company controlled the entire process of determining what the injured party was owed. It controlled the purse strings, the claims “evaluation process,” and any “review” of the evaluation. In economic terms – and this is not theoretical — the insurance company has been buying the claims of injured parties, paying less than the fair values of the claims, and then pocketing the different as profit. I say this is not theoretical because insurance companies have been proven to have an actual benchmark called “Claims Profit.”
What you have here is a Single Buyer system. Single Buyer, to put it kindly, has never been lauded by economists as establishing the best price. The Free Market is recognized as the superior solution, which is why legal funding is a positive innovation. It allows average Americans, the little guys that suddenly find themselves facing off against big insurance companies, to tap the market if/when the insurance companies leverage their financial and procedural advantages to minimize what they have to pay on a claim. Legal funding is free market solution to this slanted playing field. If the insurance companies put fair claims offers on the table, there is no need to use it. If there’s not a fair value offer, the claimant has another option to turn to. This is the essence of an effective free market.
Insurance companies do not like consumers having an opportunity to evaluate their claims offers against other free market economic options. Of course they don’t. Competition can be a tough thing. But instead of adapting to an innovative marketplace, the insurance lobby has used the U.S. Chamber of Commerce as its front group to push legislation in states across the country that target legal funding for extinction. Their primary weapon is rate caps, which they’re trying to impose on legal funding companies to restrict the economics of investing in claims. The Insurance/Chamber’s approach is about as opposite to a free market as one could conceive of. The Anti-Free Market Insurance Army has an embedded body of local lobbyist foot soldiers to do its work. Insurance execs are calling the shots while keeping from directly getting their hands dirty.
Let’s now investigate the blog I mentioned, titled “Why Lawsuit Lending Left Unchecked Is a Threat to Free Enterprise,” published on March 31, 2015. It opens by saying that the U.S. Chamber of Commerce “knows a thing or two about free enterprise.” The remaining blog clearly establishes that the Chamber either knows nothing about free enterprise, or fancies itself clever enough to spin the audience with fallacies.
The Chamber takes the words of John Adams, which say the U.S. was to be a “government of laws, and not of men,” and contorts them into this interpretation: “in other words – a legal system based on certainty, rather than arbitrary rules and the whims of the powerful.” Huh? I do not see the word “certainty,” or anything related to certainty, in the Adams quote. Mr. Chamber, I know John Adams — and you are no John Adams.
The “whim” the Chamber seems to be criticizing here is the ability of average Americans to have the wherewithal to fight for what’s fair against behemoth insurance companies (history note: John Adams supported the revolution, not the monarchy). And the “certainty” the Chamber craves is the status quo; the place where insurance companies have the playing field tilted in their favor, and can predict the behavior of cash-strapped claimants. The Chamber never even tries to explain how legal Funding creates what it calls “arbitrary rules.” But, hey, it sounds evil so they threw it in. Facts and capitalism be damned!
Digging deeper into the Insurance Lobby’s fallacy, the Chamber’s blog goes on to proclaim: “the American civil justice system has traditionally been based on two distinct parties: the plaintiff and the defendant. The lawsuit lending industry, however, inserts itself as an entirely new party to the process – with a purely financial interest in the outcome.”
As a brief aside, “lawsuit lending” is Insurance’s derogatory word for legal funding. They know legal funding is not a loan. They just like calling it one as part of their square-peg-into-round-hole strategy. And about that “two distinct parties” line: Hello! What is insurance? Is insurance not a third party that inserts itself into the process – with a purely financial interest in the outcome?
Take insurance out of the equation, and any auto accident lawsuit would be confined to the reckless driver and the person he hit with his car. The person hit would then not be faced with being adverse to a multi-billion dollar insurance company.
But what fun is having a bevy of high priced lobbyists in every state if you can’t use them to stamp out things you don’t like? Insurance and the U.S. Chamber are not pro-free market. They are pro-themselves, and against everything else.