Selling the Right to Sue

Jerry Theodorou, director of the finance, insurance and trade program at R Street Institute, a U.S.-based center-right think tank, said that insurers are “smart enough to know that TPLF doesn’t fuel frivolous lawsuits—they invest in meritorious claims likely to go to court and settle for large numbers. TPLF is all about the ‘Benjamins,’ the big money, whereas subrogation is about responsibility.”

The sale of subrogation rights to a hedge fund that will go the distance in a case is a legitimate way of forcing a responsible party to pay for the damages they caused, Theodorou said. “I imagine that some insurers give up their subrogation rights when the probability of recovering is pretty low. Hedge funds potentially have more aggressive legal tactics. Baupost, for instance, probably has a higher chance of getting a significant recovery [than an insurance company].”