North Carolina Bans Third-Party Litigation Funding: A Landmark Legislation
RIMS, the risk management society, has praised North Carolina for passing legislation that bans third-party litigation funding (TPLF) in the state. This move is seen as pivotal in advocating for national regulation on the practice. The Prohibit Litigation Investments Act, enacted on June 22, 2026, makes litigation investment illegal, imposing fines of up to $50,000 per violation. Exemptions include pro bono efforts, insurers' defense obligations, and non-contingent support.
North Carolina is the first state to fully prohibit TPLF, contrasting with states that mandate disclosure or cap funder returns. The legislation saw overwhelming support in both the House and Senate before being signed by Governor Josh Stein. By contrast, other states like Montana and Indiana have taken steps towards regulatory compliance with measures like funder registration and disclosure rules. Meanwhile, New York has proposed a detailed model earlier in 2026, with a federal initiative, the Litigation Funding Transparency Act, under Senate review.
RIMS continues to raise awareness about the economic impacts of TPLF, which involves funders supporting lawsuits for a share of settlements. These agreements often define funder identities and control over legal strategies. Critics argue that such arrangements pose conflicts of interest and inflate legal costs, which may ultimately be passed to consumers through higher prices.
Manny Padilla, President of RIMS, stated, "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." He commended North Carolina's legislative action and expressed the society's dedication to sustaining this momentum.
The property and casualty insurance sector remains chiefly concerned about TPLF due to its contribution to social inflation, where legal claim costs outpace economic inflation. Swiss Re highlights that TPLF fuels increasing loss ratios in liability areas, leading to higher premiums. The NAIC has identified TPLF as a factor in rising nuclear verdicts—jury awards exceeding $10 million—in commercial auto and product liability cases.
Insurance organizations have shown support for North Carolina's initiative. The American Property Casualty Insurance Association deemed it essential to guard against predatory funders benefiting from lawsuits. The Insurance Information Institute noted the legislation underscores the need for the civil justice system not to serve as an investment channel. Insurers and brokers managing commercial liability risk in North Carolina may experience more stable claims development, potentially setting a precedent for other states.