Tort reform lowers costs for Florida residents, but concerns over litigation financing linger

by | Apr 17, 2024

Legal reforms have lowered the “tort tax” in Florida, cutting costs for residents, though issues like third-party litigation financing and foreign judicial influences persist.

During a press conference on Wednesday, Tom Gaitens, Executive Director of the Florida Chapter of Citizens Against Lawsuit Abuse (CALA) pointed to significant reductions in the “tort tax” — costs that were embedded in all goods and services across Florida — which have now decreased to $1,056 per individual on an annual basis and $4,000 annually for a family of four.

Moreover, Gaitens pointed to improvements within Florida’s insurance sector, an area particularly affected by the inefficiencies of the previous tort system. Noteworthy among the reforms are the rate reductions announced by several insurers: Florida Peninsula Insurance has reduced rates by 2 percent, while both Slide Insurance and Florida Family Insurance have implemented a 0.5 percent decrease.

Despite these advancements, the conference shed light towards ongoing challenges, including the influence of third-party litigation financing, where external funders cover legal expenses in exchange for a portion of any settlement. Gaitens advocated for legislative measures to require the disclosure of these financial arrangements to ensure transparency and equity in the legal process. A secondary concern, as presented, is the impact of foreign entities on Florida’s judiciary, which could potentially skew judicial outcomes.

“The tort reform that we were able to pass in 2023 and the two special sessions that preceded it have shown significant impact and they’re finally taking root today,” Gaitens said. “The reason it’s taking a significant time and some bit of a delay is because the parties that have caused this problem have not stopped causing more frustration within the marketplace of civil justice.”

During a 2022 special session, the Florida Legislature approved measures to address the property insurance crisis, which was partially spurred by an excess of lawsuits. In 2021, there were 100,595 lawsuits in Florida resulting in $7.8 billion in damages. Nationwide, there were 24,700 lawsuits that created $2.4 billion in damages during the same timeframe.

Senate Bill 2D, signed during the special session, sought to reduce frivolous litigation by reserving attorney fee multipliers, requiring proof that an insurer breached its agreement with a policyholder before a lawsuit can be filed, and preventing insureds from transferring their unilateral right to receive attorneys’ fees to contractors.

Bill Herrle, Executive Director of the National Federation of Independent Business (NFIB) shared additional perspectives on the impact of tort reform on small businesses, noting that reduced litigation costs have allowed businesses to shift their focus from legal defenses to growth and innovation. He further stated that the positive changes from the legislation have translated into increased optimism among small business owners.

Despite the uptick in optimism, Herrle asserted that small business owners continue to face significant workforce challenges, compounded by the distractions of legal issues that divert resources away from essential business activities like hiring and training. The tight labor market already demands much of business owners’ attention, he said, but the additional strain of navigating complex legal landscapes due to unexpected litigation can hinder business’ ability to maintain and grow a robust workforce.

“Many small business owners are pressed behind the counter, behind the register, or in the manufacturing line because workforce is so strained,” Herrle said. ” When litigation hits, they’ve got to step away from that job and become a defendant. It’s a cloud that hangs over small business owners when they are hit by it.”

Moreover, the economic repercussions of litigation extend beyond direct legal costs, according to Herrle, affecting both consumer prices and the “entrepreneurial spirit.” As businesses face legal challenges, they often pass costs onto consumers, increasing prices and integrating what is termed the “tort tax” into everyday economic transactions.

For entrepreneurs, the threat of litigation fosters a conservative business approach, shifting focus from innovation to maintaining a low profile to avoid legal risks. This defensive posture can stifle economic growth and innovation, which CALA stated necessitates the need for legislative reforms that reduce litigation prevalence and support a fair, equitable business environment in Florida.

“All we’re asking for is to shine a bright light on a very pernicious practice we see emerging largely unknown to many people, including judges and juries who are hearing these cases and that is the practice of a third party having a financial stake in the outcome of a of a piece of litigation without ever being known,” said Herrle.

Orlando-based attorney and legal activist Matt Silbernagel elaborated on specific legislative changes, such as the adjustment of the statute of limitations for lawsuits and the transition to a modified comparative negligence model, which have significantly reduced undue legal burdens on individuals and businesses.

He joined in the criticism of third-party litigation financing, claiming that the practice encourages “unnecessarily prolonged” and “contentious” litigation, ultimately distorting the legal process and inflating settlement demands. He called for ongoing legislative efforts to regulate this area, stressing the need for transparency to ensure that the legal system operates fairly and without undue influence from vested interests.

“What you see happening is third parties bankrolling lawsuits and driving the lawsuit past reasonable settlement because they have large amounts of money invested in that litigation,” Silbernagel said. “You also have something more nefarious and that you have third party companies, sometimes international players, decide that they want to undercut an industry or business so they began to finance lawsuits and really just break down and kick away at the bottom line.”


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