North Carolina recently became the first state to ban third-party litigation funding (TPLF) in civil proceedings. House Bill 315, titled the Prohibit Litigation Investments Act, bans external investors from financing lawsuits in exchange for repayment once the case has been resolved. The law took effect on June 22, 2026.
Third-party litigation financing allows external investors, such as private equity firms, hedge funds, and institutional investors to advance money to a party, generally a plaintiff, for the payment of lawsuit expenses. A plaintiff can then pursue litigation without bearing the cost upfront. In return, the funder receives a portion of the settlement or judgement, a multiple of the amount funded, or interest on the amount loaned.
This type of external funding can affect the defense off medical liability cases where the financier has a vested interest in the outcome. External investors can be profit driven as they expect investments to produce returns, meaning the larger the settlement the larger the return. Some TPLF agreements allow external funders to influence and even drive the litigation strategies utilized in the suit. This process can lead to prolonged proceedings, higher legal expenses, and larger settlement demands. In cases where settlement cannot be reached or is not appropriate, third-party litigation funding can push cases to trial where the probability of a nuclear verdict – a jury award exceeding $10 million- may be higher. Without the financial backing of TPLF, plaintiffs may settle for lower amounts, which can lower the frequency of nuclear verdicts.
Several states are currently contemplating legislation to ban or limit TPLF practices, increase funding transparency, and protect consumers from pricing tactics during litigation. TPLF legislation typically addresses a requirement to disclose to the courts any funding arrangements, restrictions to limit funders control over litigation strategy or influence on settlement, and consumer protection to safeguard plaintiffs from being exploited or manipulated by the funding practices.
Below are some of the states with enacted or proposed legislation:
Kansas enacted a law requiring disclosure of litigation-funding agreements within 30 days of a legal action or execution of a funding agreement. The law mandates disclosure of all contracting parties and any foreign funders, particularly from countries of concern such as China, Iran, and Russia, to enhance transparency and national security protections.
Georgia is pursuing legislation that prohibits funders from influencing litigation strategy or taking the plaintiff’s entire recovery. The bill also requires disclosure of financing agreements to opposing parties.
Arizona, Colorado, Montana, and Oklahoma passed laws in 2025 to regulate TPLF. Arizona and Montana specifically prevent foreign entities of concern from financing litigation. Colorado requires foreign financiers to provide information to the Attorney General, while Oklahoma mandates disclosure of funding agreements upon request.
Indiana enacted HB 1160, which mandates disclosure of funding, prohibits funders from accessing proprietary data, and bans them from controlling lawsuits, ensuring judicial integrity.
Louisiana passed SB 355 to limit foreign litigation funding, prevent funder manipulation, and ensure plaintiffs are aware of outside influences on their cases.
West Virginia expanded its existing consumer litigation finance laws with SB 850, extending protections to large-scale litigation funding and safeguarding both consumers and businesses.
Sources:
https://www.ncleg.gov/Sessions/2025/Bills/House/PDF/H315v6.pdf
ProVisions: Private Equity & Healthcare | October 2023
https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/
https://landline.media/third-party-litigation-reform-pursued-in-10-states/
https://www.tortreform.com/news/two-more-states-adopt-third-party-litigation-reform/