Home / Regulatory & Government / Class action inquiry targets 'booming' litigation funding industry
18 May 2020
Litigation funding arrangements and financial relationships between funders and plaintiff lawyers are among the areas to be examined by a parliamentary inquiry into the class action system.
The inquiry was launched last week after Attorney-General Christian Porter announced a motion to refer the inquiry to the Parliamentary Joint Committee on Financial Services and Corporations. The inquiry was to have started in March but was delayed by the coronavirus outbreak.
The inquiry comes as the increasingly litigious environment in Australia shows no signs of easing, draining insurers’ risk appetite.
The latest figures from Marsh reveal some Side-C listed companies experienced rate increases of more than 100% for directors’ and officers’ (D&O) cover in the March quarter.
“There is growing concern that the lack of regulation governing the booming litigation funding industry is leading to poor justice outcomes for those who join class actions, expecting to get fair compensation for an injury or loss,” Mr Porter said.
“In many cases, funders are taking up to 30% of legal settlements, leaving the members of the action to fight over the scraps that remain once legal fees and other costs are paid.”
The Insurance Council of Australia (ICA) will consult its members on an industry contribution to the inquiry where required, spokesman Campbell Fuller told insuranceNEWS.com.au.
“As outlined in previous submissions, ICA is concerned with the impact the securities class actions continue to have on the D&O insurance market in Australia.”
According to previous ICA submissions, the D&O market is no longer profitable as the premium pool is not large enough to cover escalating and costly claims. Insurers have had no choice but to raise premiums substantially or quit the market.
Some class actions cost more than $100 million to settle, but the total D&O premium pool in Australia is only about $280 million.
Maurice Blackburn National Head of Class Actions Andrew Watson has called the inquiry a “pointless, partisan” exercise from the Morrison Government.
“The parliamentary joint committee is an inquiry designed to deliver the Government the answer it wants,” he told insuranceNEWS.com.au.
“The Government and vested interests including the Australian Institute of Company Directors and the Australian Industry Group are working together, along with fellow travellers in the media, to deny access to justice to ordinary Australians.”
Closing date for submissions in June 11.
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