RIMS, the risk management society, has commended the North Carolina legislature for prohibiting third-party litigation funding (TPLF) in the state, calling the move a significant step in its push for tighter national oversight of the practice.
North Carolina's Prohibit Litigation Investments Act, signed into law on June 22, 2026, makes it "unlawful for a person to engage in litigation investment in this State or to furnish litigation investment to a party or counsel of record in a civil proceeding in this state." Violators face civil penalties up to $50,000 per violation. The law exempts pro bono funding, insurers' contractual defense or indemnification obligations, and loans or financial support not contingent on a proceeding's outcome.
North Carolina is the first state to enact an outright ban on TPLF, rather than regulating disclosure or capping funder returns. The bill passed the state's House unanimously and the Senate by a 45-1 vote before Governor Josh Stein signed it.
Other states have taken narrower approaches: Montana's 2023 law requires funder registration and disclosure and caps recoveries at 25%, while West Virginia, Indiana and Louisiana have passed laws focused on disclosure and limiting funder influence over case strategy. New York introduced a comprehensive regulatory framework earlier in 2026, and a federal bill, the Litigation Funding Transparency Act, is pending before the Senate Judiciary Committee.
TPLF remains one of RIMS' legislative priorities. The Society said it will continue directing resources toward advocacy that raises awareness of TPLF's effects on the economy, intellectual property security, and organizations' ability to manage legal risk while keeping goods and services affordable.
TPLF involves funders providing money to a plaintiff or plaintiff's counsel in exchange for a share of the proceeds from litigation or settlement. Funding agreements typically identify the funder, the investment amount, the payment schedule, and whether the funder can exercise strategic control over the litigation.
Critics, including RIMS, argue the arrangements can create conflicts of interest when funders' incentives diverge from plaintiffs' interests, that foreign entities may exploit them to gain influence over the American legal system, and that they can drive up settlement costs and prolong litigation even when a plaintiff would otherwise prefer to settle. Rising legal defense costs tied to TPLF, RIMS has argued, can trickle down to consumers through higher prices.
"Third-Party Litigation Funding distorts the purpose of our legal system. It allows outside investors to profit from lawsuits at the expense of plaintiffs and businesses alike, driving up costs and creating unnecessary financial strain," said Manny Padilla, RIMS president. "North Carolina lawmakers have taken an important step toward addressing these concerns, and RIMS looks forward to building on this momentum as we continue to advance this legislative priority."
TPLF has become a focal point for the property and casualty insurance industry because of its ties to social inflation, the trend of liability claims costs rising faster than general economic inflation.
A Swiss Re analysis found that third-party litigation funding is contributing to growing loss ratios in excess liability, commercial auto, medical malpractice and general liability, feeding into higher premiums for commercial policyholders. The NAIC has similarly flagged litigation funding as a driver of nuclear verdicts, jury awards exceeding $10 million, which have grown markedly more common in commercial auto, product liability and medical liability cases in recent years.
Insurance trade groups have backed North Carolina's law. The American Property Casualty Insurance Association called it "an important measure that will help protect North Carolinians from predatory commercial third-party funders looking to profit off lawsuits at the expense of businesses and consumers," while the Insurance Information Institute said the law "sends a clear message that the civil justice system is not an investment vehicle."
Insurers and brokers underwriting commercial liability risk may see more predictable claims severity and loss development in North Carolina over time, a model other states may watch as the law faces early legal challenges.
