Litigation funding industry impacts insurance and U.S. regulation

The third-party litigation funding (TPLF) industry is significantly impacting the economics of insurance claims and legal disputes. This market, valued at approximately $17 billion globally as of 2021, allows claimants to finance expensive legal battles in exchange for a share of the eventual recovery. While this provides resources for plaintiffs to pursue complex cases, insurers note it introduces new variables in estimating the cost and duration of liability claims.

In the United States, regulatory responses to the industry vary. North Carolina became the first state to implement an outright ban on commercial litigation funding on June 22. However, a nationwide trend of bans has not emerged. Instead, 20 states have enacted regulations, with 13 of those passing restrictions within the last two years. These regulations typically focus on transparency, prohibiting funder control over legal strategy, and capping investor payouts rather than total prohibition.

The conflict pits the TPLF sector, which argues it provides necessary capital for companies to fight large adversaries, against insurance and corporate defense groups. The latter contend that such funding contributes to higher settlements and increased insurance premiums. Future legislative battles are expected in states such as Texas and Florida.