There is no hiding from the headlines around inflation. This began with uncertainty around U.S. trade policy, particularly tariffs. Then, more recently, the war in Iran created a much more volatile and faster route to price instability. Oil, as Billy Bob Thornton would point out, is in everything. Crude oil, in particular, which diesel fuel is derived from, has its dirty little paws in everything. From fertilizer to materials to the fuel that trucks need to carry goods across the country. So when there is a 60% increase in the cost of crude oil, things can start to spin out of control pretty fast. Cue the spin.
Within insurance parlance, “social inflation” has been on the minds of many, and that is nothing new. Social inflation is an unfortunate and reductive label for what has been happening and accelerating since COVID. It is effectively the exponential increase in the value of tort injury claims, including bodily injury and some property damage. Contributing factors are broad and include medical trends, general inflation, a lack of trials, physician E&O, and something near and dear to the hearts of readers here: third-party litigation funding.
I am not here today to judge the merit of litigation funding. I am not a “never funder,” but I do believe there needs to be substantial legislative reform in a few areas. The first is juror transparency and education. Whether it comes into evidence or not, every juror fundamentally understands that the defense likely has insurance. There is not that same awareness when it comes to the plaintiff and third-party litigation funding. In states like Wisconsin, the insurer is almost always a party to the suit. You cannot tell me there is not some level of one-sidedness there. I am not looking to be overly prejudicial or to erode the plaintiff’s argument by highlighting funding, but I do believe there needs to be more awareness.
My second issue with third-party litigation funding is the excessiveness around the size of verdicts and the targeted harvesting that is happening through unethical solicitation. It is effectively turning litigation funding into a guerrilla marketing campaign that trades on vulnerability.
That said, let us now discuss the convergence of third-party litigation funding and everyone’s new favorite two-letter word, AI. The combination of these two has the potential to create a financially catastrophic cocktail. There are firms all over the country and the world investing in what is now an asset class. Firms like Burford Capital are pioneers in this space and are building out the possibilities of a new generation of litigation funding. They are also investing in technology that may enable more efficient modeling, more specific targeting, and more calculated verdicts and settlements.
Emerging capabilities include:
- AI jury analytics that model how specific juror profiles respond to arguments, evidence, and emotional cues
- Venue risk scoring that quantifies the likelihood of outsized verdicts in plaintiff-friendly jurisdictions
- Settlement modeling that predicts optimal demand and resolution ranges based on historical verdict patterns
- Litigation funding has already shifted the balance of power by giving plaintiffs the capital to pursue complex, high-value claims.
Now layer in AI.
Funders can underwrite cases with greater precision, identify jurisdictions with the highest upside, and optimize timing and settlement strategy. The result is a more efficient pipeline of high-severity claims, selectively advanced based on data, not just merit. This does not just increase the number of cases. It increases the quality and financial targeting of those cases.
Litigation harvesting is already happening in large numbers, with significant advertising dollars being spent to acquire plaintiffs. This is where I believe a substantial amount of future capital will be deployed. Acquiring new plaintiffs will enable more class actions and multidistrict litigation to emerge from data-driven targeting. My concern is that this creates a force multiplier that continues to leverage an already vulnerable sector, one that is also a significant component of consumer spending and inflation.
You may ask, what about insurers? Do they not have access to the same data and resources?
They do. The problem is that insurers are defensive by nature. They cannot use data to stop litigation from being filed or to prevent accidents from happening. Insurance relies on the law of large numbers to pay for claims. What we are discussing here is a disruption in how that math works. Increasing the number of litigants and claims introduces more participants into the system, more legal expense, and more indemnity, without a corresponding increase in premium.
You may also ask whether everyone deserves their day in court and whether wrongs should be righted. This is not an argument against that principle. It is an argument that suggests we may not be able to sustain it at the current trajectory. Artificially surfacing claims and litigants disrupts the balance of the system. Without substantial rate increases, likely to the point of unsustainability, there is no way to keep up. This is especially true if the process is further accelerated by AI.
Insurance companies will have limited tools to put guardrails around this type of tactical plaintiff strategy. Potential responses include:
- AI-driven defense modeling and early case valuation
- More aggressive venue challenges and jurisdictional strategy
- Increased investment in claims analytics and litigation intelligence
In my view, however, what is really needed is a shift in mindset around actually trying cases. The investment into third-party litigation funding and AI from private equity and family offices draws attention because of the pressure it puts on insurers to settle. Think about reserve setting and benchmarking as a staircase. With each major verdict, a new floor is established. With each new floor comes increased investor interest. We are trying fewer cases in this country than ever before, and it is starting to resemble a downward spiral driven by the fear of losing.
Every arms race has a tipping point where one side’s advantage forces a systemic response. The question is not whether AI will change litigation. It is whether the insurance industry, corporate defendants, and the broader economy are ready for what happens if it does.
If AI becomes a dominant force in shaping verdict outcomes, we may not just be talking about nuclear verdicts. We may be talking about nuclear-level economic consequences.
This is a nuanced development within litigation, and there are likely many appropriate responses. But I am convinced that a major component of any solution is a more aggressive defense posture and a renewed willingness to actually try cases.
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