National insurance groups are hailing the signing of a new law in North Carolina, one that makes the state the first to place an outright ban on third-party funding of lawsuits.
House Bill 315, signed by Gov. Josh Stein this week, “is 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,” the American Property Casualty Insurance Association said in a statement Wednesday.
“Third-party litigation investment has become an increasingly significant driver of legal system abuse, injecting profit motives into disputes that should be resolved on their merits,” the Insurance Information Institute’s Mark Friedlander said. “North Carolina’s historic action sends a clear message that the civil justice system is not an investment vehicle.”
At least 11 U.S. states have enacted some restrictions on litigation financing, including disclosure requirements, “no-influence-the-outcome” measures, and a bar on foreign interests. Georgia’s governor in 2025 signed a bill that now requires financiers to register with the state Department of Banking and Finance and to provide information about principals and affiliations with foreign interests. It also bars funders from making legal decisions about attorney representation, settlements and expert witnesses, and requires disclosure in discovery of litigation financing agreements.
A Florida bill this year would have barred conflicts of interest by funders, banned funders from picking lawyers and witnesses, and would have limited amounts that third-party financiers could recover. That measure died in committee this spring.
North Carolina’s law takes prohibitions to a new level.
“It is 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,” the law reads.
The statute takes effect July 1 and applies to lawsuits arising on or after that date. It invests the state attorney general with the authority to bring legal action against violators, and to impose penalties of $50,000 per violation.
Perhaps ironically, the measure could lead to some litigation of its own.
“A person injured by a violation of this Article may bring an action to recover damages and is entitled to elect at judgment between common law damages as measured by the trier of fact and statutory damages as measured by treble the amount of the full potential litigation investment contemplated by the investor,” the law reads.
The injured person is also entitled to recovery of court costs and reasonable attorneys’ fees.
House Bill 315, with multiple sponsors on both sides of the political aisle, was approved by the North Carolina General Assembly in June, with only one “nay” vote. Supporters and news media in the state credited the North Carolina Chamber of Commerce with lobbying hard for its passage during the spring legislative session.
Chamber President Gary Salamido thanked supporters, including Sen. Buck Newton, a lawyer himself, and state Rep. Sarah Stevens, who left the House this year to campaign for a state Supreme Court seat, for pushing the measure through. The law will enhance North Carolina’s business competitiveness and reduce excessive and unnecessary litigation, Salamido wrote on the Chamber’s blog.
In recent years, some investments firms around the country have been blamed for a growing amount of third-party litigation funding. Critics of the practice have argued that the funding escalates litigation and turns manageable disputes into major lawsuits that can drag on for years, costing businesses and insurance companies.
Third-party investors and some plaintiffs’ law firms have said the funding allows injured parties to seek justice and financial compensation when they may otherwise be unable to afford civil action or find legal representation.
TPLF, as it’s known, was already facing headwinds before the North Carolina law was approved. News reports have noted that litigation finance had a bad year in 2025, as some hedge funds and other investors pulled back from the $20 billion market. The reasons: The threat of more regulation, lower trial payouts and settlements, and longer litigation times, Bloomberg news service reported.
A national measure in Congress, HR 7015, known as “The Protecting Third Party Litigation Funding From Abuse Act,” has seen little action in the U.S. House since it was introduced in January. If approved as law, it would require full disclosure as well as court review of all funding contracts.
North Carolina’s new law notes it does not bar an insurer’s contractual obligations to defend or indemnify parties in a lawsuit, nor does it ban family members of injured parties from helping with some costs. It also does not block “a direct loan to a party, law firm, or attorney so long as repayment of the loan is not contingent on the outcome of any civil proceeding.”
HB 315 also included some non-litigation-funding measures, such as a significant increase in limits on workers’ compensation benefits. For face and head disfigurement injuries, the maximum award was raised from $20,000 to $40,000. For bodily disfigurement, “where there may be a rational connection to employability or earning capacity and for which no compensation is payable under any other subdivision of this section,” the maximum amount doubled, to $20,000.
And for external or internal organs, the top award was raised to $40,000, the law reads.
The full statute can be seen here.
Topics
Lawsuits
North Carolina
