North Carolina became the first US state to ban third-party litigation investments in civil lawsuits. The measure aims to limit outside funding arrangements that insurers say increase litigation costs and raise pressure on premiums, according to Beinsure.
Governor Josh Stein signed House Bill 315 on June 22. The legislation prohibits litigation investments in pending or potential civil suits and also increases some workers’ compensation benefits.
The law defines litigation investments as direct payments, advances, loans, investments or other funding for civil litigation fees, costs and expenses when repayment depends in any way on the outcome of the case.
The statute excludes contingency fees and an insurer’s contractual duty to defend a party. It also permits certain loans and financial support when repayment is not tied to the result of a civil proceeding.
American Property Casualty Insurance Association State Government Relations Vice President Ron Jackson said the ban protects residents from funders seeking profit at the expense of businesses and consumers. He described third-party litigation funding as a secretive and unregulated practice involving outside investors, including hedge funds and foreign actors, that bankroll lawsuits and influence case strategy.
Jackson said the absence of regulation means courts and defendants often do not know when a third-party lender is involved or who controls the funding. He said those arrangements raise concerns about transparency, inflated litigation costs and national security risks.
National Association of Mutual Insurance Companies State and Policy Affairs Senior Vice President Erin Collins said the law addresses a significant factor behind rising insurance costs.
She said other states should follow North Carolina’s approach because courts exist to resolve disputes fairly, not to support profit-driven investment schemes.
According to Beinsure, insurers and business groups have increased pressure on state lawmakers to address litigation financing as part of wider tort reform efforts. Their argument rests on the idea that outside capital changes settlement incentives, prolongs disputes and makes liability claims more expensive.
Collins said third-party litigation financing creates incentives for investors to file weak lawsuits, extend litigation and reject settlements in pursuit of higher returns. She said those costs eventually reach consumers across the state.
The Perryman Group estimated excessive US tort system costs at $397.2 bn in 2024, up from $367.8 bn a year earlier. In a 2026 Citizens Against Lawsuit Abuse report, the firm calculated New York’s annual per-capita economic loss from excessive tort costs at $2,684, the third-highest tort tax in the country.
New York adopted a different approach. Governor Kathy Hochul signed the Consumer Litigation Funding Act at the end of 2025, requiring litigation funders to register with the state and provide consumer disclosures on fees and repayment obligations. The law caps total charges at 25% of a plaintiff’s gross recovery and bars funders from directing legal strategy.
Jackson said the American Property Casualty Insurance Association sees bipartisan momentum across the US. While North Carolina is the first state to ban commercial third-party litigation funding, a growing number of states have passed laws to limit or regulate litigation finance, including funding offered directly to consumers.
