On Good Friday in 2006, a hailstorm across Indiana caused more than a billion dollars in damage and provided an opportunity to show how litigation finance can be an instrument for justice. When an insurance company violated its duties to its policyholders, a courageous plaintiff and a litigation funder made it possible to hold the insurance company accountable. To be sure, the funder made a significant profit. But justice was done where it might not otherwise have been.
One of the biggest home insurers in Indiana is State Farm Insurance, which has its headquarters there. It received almost fifty thousand claims for property damage and rejected more than seven thousand of them. Joseph Radcliff noticed something funny about those rejections. A roofer, Radcliff had been hired by three hundred or so State Farm policyholders. He noticed that some of his clients whose claims had been rejected by State Farm lived next door to homeowners whose claims had been approved by other insurance companies. Radcliff reported State Farm to Indiana insurance regulators.
State Farm struck back at Radcliff with a vengeance. The company manufactured allegations that he had vandalized roofs as a basis for fraudulent insurance claims; and the allegations led to Radcliff’s arrest on fourteen felony counts, including corrupt business influence and attempted theft. The company also made sure that these allegations were covered in the press. The criminal charges were dismissed, but only after the publicity destroyed Radcliff’s business.
State Farm wasn’t done. It sued Radcliff for fraud and racketeering. But Radcliff countersued for defamation, abuse of process, and tortious interference with business relationships. In 2011, a jury entered a verdict for Radcliff on his own claims and on State Farms, awarding him $14.5 million in damages, one of the largest defamation verdicts ever delivered in the United States. Of course, State Farm did not simply pay the judgment; it filed an appeal.
That’s when litigation finance came in. Radcliff’s legal costs had been extensive, and he was without a business. It would have been difficult for him to wait several years for the appeal process to run its course before he could finally collect. So a litigation finance company gave him $2.27 million, so he could pay off his and his wife’s debts and start a new business. In addition, he agreed to let the funder pick his appellate lawyer, and the funder agreed to pay an additional two hundred thousand dollars for the appellate lawyer’s fee.
In 2013, an intermediate appellate court ruled for Radcliff. In 2015, the Indiana Supreme Court affirmed the decision and ended the case. State Farm ended up paying Radcliff over $17 million, including interest on the original verdict amount; the funder took home its promised amount. And State Farm was held accountable for attempting to wrongfully destroy a public-spirited whistleblower.
Topics: litigation finance, legal reform, third-party funding, litigation costs, legal costs, law and economics, fairness, State Farm, appeals, insurance
Lincoln Caplan, Lawyers and the Ick Factor, New Yorker (July 9, 2015).