A recent federal appeals court ruling could help insurers and regulators uncover who truly controls litigation funding firms and medical clinics accused of fueling auto accident and insurance fraud. Legal experts say the decision is significant, but warn that it alone will not solve longstanding transparency problems.
The ruling came from the U.S. 11th Circuit Court of Appeals, which upheld the federal Corporate Transparency Act and overturned a lower court decision that had questioned its constitutionality.
Corporate Transparency Act Upheld on Appeal
In its December 16 decision in National Small Business United v. Treasury Department, a three-judge panel ruled that the Corporate Transparency Act lawfully regulates economic activity by limiting anonymous business ownership.
Writing for the court, Andrew Brasher said the law targets economic conduct that has a substantial effect on interstate commerce. The panel also ruled that the act does not violate the Fourth Amendment.
The decision allows enforcement of the law’s requirement that certain corporations disclose their “beneficial owners,” or the individuals who ultimately control the company.
Implications for Insurance Fraud Investigations
Insurance litigation experts say the ruling could assist insurers investigating auto accident schemes, staged crashes, and questionable medical billing practices. These cases often involve medical clinics and litigation funders whose ownership structures are deliberately opaque.
William Large, president of the Florida Justice Reform Institute, called the ruling “very beneficial,” but said additional legislative action is needed at the state level.
According to Large, identifying the people behind litigation financing arrangements is essential to curbing abusive litigation practices.
Limits on Access to Ownership Information
Despite the ruling, experts caution that access to ownership data remains restricted. Under the Corporate Transparency Act, covered entities report ownership information only to the US Treasury Department, through its Financial Crimes Enforcement Network.
That information is not publicly available and can be released only to authorized law enforcement or regulatory agencies, often requiring a court order. Insurance companies and defense attorneys may not automatically gain access.
The law also includes broad exemptions. Insurance companies, banks, investment firms, nonprofits, and many large corporations are excluded from the reporting requirement.
State Laws Seen as Critical to Transparency
Because of these limitations, insurance attorneys argue that state-level disclosure laws are essential. Several states have already enacted litigation funding regulations, including Georgia, Arizona, Colorado, Wisconsin, Kansas, Montana, Indiana, West Virginia, Oklahoma, and Louisiana.
Georgia’s 2025 law requires litigation funders to register with the state, disclose affiliated individuals, and prohibits them from directing legal strategy or expert testimony. The law also makes funding agreements discoverable and can expose funders to sanctions tied to litigation misconduct.
Florida and Other States Lag Behind
Florida, widely viewed as a hotspot for auto insurance fraud, has not enacted similar disclosure rules. Proposed litigation funding bills in the state’s 2024 legislative session failed to advance.
Defense attorneys in Florida and New York say some medical clinics involved in personal injury claims appear to be owned or controlled by plaintiffs’ law firms. These clinics are accused of providing unnecessary treatments, inflating bills, and billing insurers for staged or exaggerated injuries.
Complex Ownership Structures Obscure Control
Experts say fraudulent medical clinics often use layered corporate structures to hide ownership. Jessica Schmor, a registered nurse and certified medical coder, said clinics are frequently owned by shell corporations, which are then controlled by LLCs registered in states like Delaware or Wyoming.
Those states do not require public disclosure of beneficial owners, making investigations difficult. Even when records are subpoenaed, the information may be incomplete or misleading.
Calls for Broader Legislative Reform
Jordana Kahn, a former prosecutor now with Burger, Meyer & D’Angelo, said judges sometimes allow limited discovery of third-party litigation funders, but that approach lacks the scope needed to deter abuse.
New York insurance attorney Mike Nelson said the appeals court ruling strengthens efforts to combat fraud, calling challenges to the Corporate Transparency Act misguided.
Still, experts agree that without stronger state laws and broader access to ownership data, insurers and courts will continue to struggle to trace the financial networks behind litigation-driven insurance fraud.
