Litigation Funding

Third-party litigation funding (TPLF) is a practice where a third-party entity provides funding to a litigant (typically a plaintiff) or law firm in exchange for a share of the potential recovery in a lawsuit. These investments are made on a non-recourse basis, meaning plaintiffs do not have to repay the funding if their lawsuit is not successful. This phenomenon has gained significant attention in recent years, with proponents praising it as a way to level the playing field for plaintiffs who may lack the resources to pursue litigation, while critics raise concerns about its ethical implications and potential impact on the legal system. The practice of TPLF is common in Europe and has experienced a significant spike in the United States in the last decade. Third-party litigation funding is estimated to be a multi-billion-dollar industry, but despite its ever-increasing popularity, up until recently, it was largely unregulated and subject to very little oversight. The lack of transparency characterizing the industry made it difficult for judges and other parties to know who all has an interest in the outcome of a case. Furthermore, concerns had been raised by some insurers, businesses, and lawmakers that the introduction of a third-party funder can adversely alter the dynamic between plaintiff and attorney by encouraging dubious litigation in the hopes of significant financial gain, the rejection of reasonable settlement offers, and the shifting of control over legal strategy from the plaintiff to the funding entity and so on. Recently, especially following the Trump Administration’s first presidency, several measures and steps have been undertaken to create more federally mandated disclosure requirements. Additionally, states have passed more funding disclosure laws, and a new focus has been placed on monitoring disclosure of foreign nationals as the source of third-party funding.

Background

Third-party litigation funding (TPLF) is the practice of a third-party, such as a hedge fund or investment firm, providing funds to plaintiffs to finance litigation. If the plaintiff is awarded a monetary settlement, then the investor is paid a portion of the winnings, and, generally, at a high rate of return. Investors will consider a case to establish its merits and determine the probability of success. If the litigant loses the case, then the funding entity forfeits its investment, and the litigant owes them nothing. The practice of litigation funding originated in Australia in the mid-1990s, quickly spread throughout Europe, and eventually made its way to the U.S.

Historically, what is now known as TPLF was known as “champerty” or “maintenance,” old common law concepts that barred third parties from interfering in ongoing litigation. Maintenance refers to the assistance to a litigant by someone with no interest in the case; champerty is the specific form of maintenance that grants the third party a share of the proceeds. However, most states have abolished the concepts, in fact or in law, and permit TPLF, though many have passed regulations to limit the practice.

There are two primary forms of TPLF: consumer and commercial litigation funding. Consumer arrangements are between a funder and an individual, usually a plaintiff in a tort or personal injury case. TPLF can be helpful in cases where a plaintiff without sufficient means would otherwise get crushed or lowballed by a defendant with deep pockets. The funder provides a relatively small amount of money (usually less than $10,000) for the plaintiff to use as needed throughout the duration of the case. Commercial TPLF arrangements are typically between a litigation funder and a corporate plaintiff or law firm and involve commercial claims, such as breach of contract and antitrust violations. The funding amount is typically in the millions of dollars for these arrangements. As the industry has evolved, litigation funding companies have created different types of funding and payment structures in order to accommodate the clients that commercial litigation funders service. One of the more popular funding structures is a portfolio, which allows a law firm to receive funding for multiple cases in a variety of practice areas. Although this structure results in lower returns for each individual case, the litigation funder can collect capital from a variety of cases in unrelated areas of law, via cross-collateralization, typically leading to greater returns on investment and less risk.

Most litigation funders are private firms that obtain investment capital from a variety of investors, such as endowments, pensions, and sovereign wealth funds. Regarding sovereign wealth funds, critics of TPLF are particularly concerned about the potential for foreign financiers to exploit the lack of transparency in the U.S. litigation financing industry in order to influence courts for strategic goals and to gain intelligence. In addition to private firms, there are a small number of funders that are large, publicly traded companies who specialize in TPLF, including firms such as Burford Capital and Omni Bridgeway.

Litigation financing is attractive to investors primarily because of the massive potential upside on their investments coupled with the fact that these investments aren’t subject to the volatility of the stock market. Christopher Bogart, the CEO of Burford Capital, has commented on the appeal of investing in litigation saying, “the benefit that you get from litigation is that litigation doesn’t fluctuate the same way that markets do.” Investors are increasingly viewing litigation funding as a particularly lucrative investment which is reflected in the substantial growth of the market. According to Westfleet Insider’s Litigation Finance Market Report, new capital commitments to law firms and their clients grew by nearly 23% in 2025, the largest year-over-year growth rate seen to date. Additionally, assets under management across the entire industry grew to $16.1 billion in 2024. Litigation funding continues to grow and in 2025, there was a $2.8 billion increase in new deal commitments.

Importantly, there is a difference between litigation funding and what is often referred to as a “lawsuit loan.” If a plaintiff is amid a legal proceeding and needs money to cover basic living expenses as the lawsuit continues, then this individual may qualify for a lawsuit loan. A lawsuit loan, or a lawsuit cash advance, refers to when a plaintiff takes out a loan with a funding company while waiting for the suit to settle. With this loan, the funding company buys your right to a portion or all of your lawsuit award or settlement in exchange for a cash advance that you receive while the case is pending. However, lawsuit loans are incredibly expensive, as the amount borrowed must be paid back with interest, fees, and charges. In this case, most interest rates are not subject to regulation and often run quite high.

While third-party litigation funding may have loan-like characteristics, these contracts are typically made on a non-recourse basis except in some extraordinary situations. "Non-recourse civil litigation advance" means a transaction in which a company makes a cash payment to a consumer who has a pending civil claim or action in exchange for the right to receive an amount out of the proceeds of any realized settlement, judgment, award, or verdict the consumer may receive in the civil lawsuit. So, the funding is viewed as an “investment” in the successful outcome of a legal proceeding rather than as a loan to be paid back. The amount that a funder is willing to invest is based on their analysis of the merit and value of the underlying claim. Furthermore, depending on the type of investment and its restrictions, the use of funds is left to the discretion of the recipient.

The most obvious benefit of third-party litigation funding for a plaintiff is that the funder provides some or all the capital needed to pursue the claim. This situation is particular to a plaintiff with a meritorious claim who lacks the financial resources to pursue the litigation of that claim.

Third-party funding is also becoming increasingly common through management service organizations (MSOs). MSOs are entities separate from the law firm itself which handle the firm’s back-office capacities, ranging from human resources to marketing and client intake. While ownership of law firms by non-lawyers is strictly illegal in the United States, private equity and law firms team up to invest in the MSOs with the idea that a more streamlined back-office will allow the firm to increase its caseload and profits, which are then invested back into the MSO. Private equity takes a share of whatever profits come from the MSO itself, usually management fees. This trend, like TPLF, increases the amount of third-party money flowing into the legal system and raises concerns regarding ethical obligations and conflicts of interest.

Injuries and Damages

The lack of transparency that characterizes litigation funding has fueled concerns about conflicts of interest that may distort the civil justice system. Many view TPLF as a practice with the potential to tip the scales of the justice system from fairness to profit. Historically, the legal system has frowned upon allowing non-litigants to provide money to a person for pursuing or maintaining a lawsuit. In this view, there are many possible injuries and damages that might result from TPLF, including:

• An increase in the filing of trivial lawsuits in cases where the potential payout is significant
• The external shaping of litigation and the law itself
• The requirements for transparency between funder and plaintiff may inadvertently infringe on attorney-client privilege
• The potential to undercut the plaintiff’s control of the litigation if the funder seeks to control the legal strategy of a case
• The creation of ethical problems for the plaintiff’s attorneys, bringing up the question as to whether an attorney NOT funded by the client will act in the client’s best interest
• An increase in the volume and costs of litigation as third-party funding increases
• Multiplicative fiscal and consumer effects including loss of tax revenue, loss of purchasing power, and loss of direct take-home pay
• The curtailment of plaintiff awards and increased profits for the funders due to the lack of regulation on TPLF interest rates in most states

In essence, the practice and unregulated nature of third-party litigation funding poses a series of practical, ethical and legal questions.

Legislation and Regulation

Third-party litigation funding is a rapidly evolving industry, responsible for introducing billions of dollars into the judicial system every year, and yet the U.S. federal government has still not established a comprehensive regulatory framework in response. Presently, all TPLF regulations exist as a patchwork of state statutes and judicial decisions. The significant variability of state approaches to TPLF regulation has resulted numerous substantive differences in how consumers and investors can engage in TPLF across the country. For example, given that there is no consensus on whether TPLF should even be permitted, the ability to obtain TPLF is geographically dependent. And the state-based regulatory complexity only increases from there. Some states require some form of TPLF registration or licensure, while others impose agreement-disclosure requirements mandating litigation funders to divulge certain information contained within their funding contracts, including financial terms such as the funding amount as well as the annual percentage rate. Additionally, in an effort to enhance protections against predatory funding, some states have also enacted laws regulating TPLF interest rates or fees.

Federal
While there is currently no single federal statute establishing TPLF requirements, there have also been efforts to introduce some transparency to the TPLF industry on a federal level. In March 2021, the Litigation Funding Transparency Act (LFTA) was reintroduced in the House and Senate. Similar to previous efforts, these bills proposed that the identity of the funder and a copy of funding agreement be disclosed in federal class actions and multi-district litigation (MDL) cases. While the LFTA was ultimately not passed into law during the 117th Congress, it was reintroduced in the 119th Congress as the Litigation Funding Transparency Act of 2026. The bill was most recently referred to the Senate Judiciary Committee but has yet to progress further.

This most recent iteration of the LFTA would require the disclosure of the identities of any third-party funder to the court and named parties within 10 days of the execution of such an agreement or the time of service of the action. The disclosures would be classified under Rule 26(a) of the Federal Rules of Civil Procedure and would be subject to sanctions provided under Rule 37. The LFTA would also prevent litigation funders from hijacking the litigation by barring the exertion of influence on litigation strategy or settlement agreements. The LFTA would also include propriety information protections for consumers and clients.

While there is no catch-all Federal Rule of Evidence or Civil Procedure, each District and Circuit Court has its own rules, and many of them require disclosure of TPLF agreements. Still, courts diverge on whether TPLF agreements are discoverable, as they are not necessarily related to the merits of the claim, and there are additional concerns about attorney work-product protection.

The importance of establishing some level of transparency in this industry cannot be overstated. Litigation funders are fundamentally reshaping every aspect of the litigation process including which cases get brought, how long those cases are pursued, and how much they’re being settled for. An entire branch of government is being clandestinely transformed and it’s occurring without any oversight. Hopefully, Congress will recognize the importance of transparency when it comes to this issue and institute widespread regulations for TPLF.

The following states have passed legislation specific to the regulation of TPLF:

Arizona
Az. Rev. Stat. Tit. 12, Ch. 28
In 2025, Arizona enacted SB 1215, effective January 1, 2026, which regulates litigation financing agreements. The act prohibits financiers from taking control of litigation-related decisions, bans commissions for referrals to litigation funders, and bars funding by foreign entities of concern. Further, the act mandates that litigation funding agreements be disclosed without a discovery request within 30 days of the commencement of the civil action, and makes other information related to the TPLF discoverable.

The provisions are enforceable under the Arizona Consumer Fraud Act and permits the court to issue sanctions on violating parties. Incomplete requests are regarded as violations, punishable by compensatory and punitive damages; willful violators can face up to tens of thousands of dollars in civil penalties for their noncompliance.

Arkansas
Ark. Code Ann. § 4-57-109
In 2015, Arkansas passed a statute that regulates lawsuit lending and imposes a rate cap. The Arkansas Code was amended to include a section entitled ‘Consumer lawsuit lending’ which defines consumer lawsuit lending as:

Providing money to a consumer to use for any purpose other than prosecuting the consumer’s dispute, the repayment of which is conditioned upon and sourced from the consumer’s proceeds from the outcome of the dispute by judgment, settlement, or otherwise; and

Purchasing from a consumer a contingent right to receive a share of the proceeds of the consumer’s dispute by judgment, settlement or otherwise.

This statute requires that any contract that governs third-party litigation funding must be in writing and explicatively disclose the annual percentage rate of interest. The statute makes all consumer lawsuit lending contracts subject to the state’s interest rate cap of 17%. Furthermore, any amount paid to a litigation funder above the initial amount provided to the consumer must be included as interest.

California
Chapter 565
Assembly Bill No. 931, enacted in 2025 as Chapter 565, regulates “consumer legal funding” by requiring contracts be written and barring commissions for referrals, but it does not mandate disclosure of funding agreements. The act also prohibits in-state attorneys from sharing fees with out-of-state legal service providers which allow non-attorney ownership. The act slightly tightens the regulations around TPLF, but it takes a step back by affirming in its definitions that the contingent right to receive proceeds from a legal claim is assignable.

Colorado
HB25-1329
Colorado’s recent TPLF legislation specifically targets foreign funders, requiring them to disclose their funding and submit certain information to the attorney general. Further, it bars foreign entities from using domestic “puppets” as a means to finance civil litigation. Information regarding funding agreements is now discoverable subject to Colorado’s rules of civil procedure and evidence. Failure to comply with the provisions voids the agreement, constitutes an unfair trade practice, and is subject to enforcement by the attorney general.

Georgia
SB 69
Signed into law in April 2025 and effective January 2026, SB 69 requires litigation financiers in Georgia to register with the Department of Banking and Finance. Further, it bars litigation financing by persons affiliated with a foreign government, or any person, entity, or sovereign wealth fund related to a foreign adversary as designated by the Department of Commerce. The bill also makes litigation financing discoverable in civil cases, increasing transparency in the whole process.

Illinois
Passed in May 2022, Illinois’ new legislation regulates several aspects of third-party litigation funding including licensing and contractual requirements, limits on consumer legal funding fees, prohibition of funder control of litigation and settlement decisions, bans on lawyer and medical referral, and provisions extending attorney-client privilege to communications between the consumer’s attorney and the funder.

The statute requires that a funding company’s fee “shall be calculated as not more than 18% of the funded amount, assessed on the outset of every 6 months.” However, the statute lacks clarity as to whether the 18% calculation is simple, compound, or cumulative interest over the 42-month period. This has caused some groups to voice their concerns. The American Property Casualty Insurance Association (APCIA) stated, “This lack of clarity is problematic, as a cumulatively calculated interest rate could run as high as 126 percent! It is essential for the protection of consumers that this interest rate calculation be clarified.” Furthermore, the Illinois Chamber of Commerce also took issue with the imposed rate saying, “[t]he rate is so high as to be both punitive for the consumer and prohibitive towards settlements.”

Notably, this new legislation does not include any provisions related to the disclosure of the consumer legal funding agreement or information about the existence of a funding arrangement to defendants as part of claim litigation. However, in 2026 Illinois has proposed the Litigation Financing Transparency Act which requires stricter disclosure and registration requirements. The goal was to require disclosure of hidden private financial interests and protect the public.

Indiana
IC 24-12
Indiana passed legislation in 2016 regulating litigation funding companies. The legislation includes notice and disclosure requirements, a prohibition of attorney referral fees, extension of attorney-client privilege and standardized contract language. The state also imposes limitations on annual interest rates and services fees that litigation funders can charge. Annual rates of return cannot exceed 36% and service charges are capped at 7%.

In 2024, Indiana passed House Bill 1160 which specifically focused on the regulation of commercial litigation funding, after concerns over frivolous lawsuit and national security risks. A ban has been placed on certain types of funding from foreign sources and makes the content of the settlements discoverable. Additionally, H.B. 1160 prevents commercial litigation financiers from making settlement or litigation decisions.

Surprisingly, the very industry these laws seek to regulate has voiced its approval of this legislation. The Alliance for Responsible Consumer Legal Funding (ARC), which represents roughly half of the companies that provide litigation funding, has expressed support for Indiana’s law saying that the state’s approach validates the industry and provides good consumer protections. ARC’s president Eric Schuller also commended the state’s decision to extend attorney-client privilege to funding companies saying, “Sometimes we get privileged information by mistake, and the defense has put subpoenas on funding companies to try and get that information that would otherwise be privileged, [so], extending the privilege is very good consumer protection.”


Kansas
SB 54
Kansas’s SB 54, enacted in 2025, amend the Kansas Rules of Civil Procedure to require the disclosure of TPLF agreements. The bill applies to all agreements where a party agrees to pay expenses directly related to the legal claim and has a contractual right to receive compensation, excluding agreements where the payment is equal to repayment of the funding plus reasonable interest not to exceed 11.1%. Disclosure must happen within 30 days of the commencement of the legal action or 30 days after the agreement is executed, whichever is later. Notably, the bill does not bar third-party funders from making decisions regarding settlement agreements, it only requires disclosure thereof. Additionally, while these agreements are discoverable, they are not necessarily admissible at trial.


Louisiana
La. R.S. T. 9, Cdbk. III, Cdtl. XII, Ch. 2-C §§ 3580.1—3580.7
In 2024, Louisiana enacted a bill that requires the disclosure of funding from “countries of concern.” It also bars the third-party backers from making any decision relevant to the outcome of the case, including choosing counsel, expert witness, general litigation strategy, and whether to settle. Litigation finance contracts will also be discoverable in civil cases under the legislation. This follows as a more expansive legislation was vetoed the year prior, marking a major change in trajectory for TPLF regulation.


Maine
Me. Rev. Stat. Ann. Tit. 9-A, art. 12
While Maine does not have one singular modern statute regulating TPLF, Maine regulates the process through other legal frameworks. In 2007, Maine became the first state to pass legislation regulating litigating-finance agreements that focused on regulation of consumer lawsuits. Maine requires litigation funders to register with the state. Funding contracts must include the total amount that consumers must repay, in 6-month intervals for 42 months, and the annual percentage fee. Litigation funding contracts are required to include an assertion that the litigation funding provider is not permitted to make any decision with regard to the conduct of the underlying civil action or claim. Maine law also requires annual reporting of certain data from litigation funders including the number and amount of legal fundings, the number of legal fundings required to be repaid by the consumer and the amount charged to the consumer including, but not limited to, the annual percentage fee.

Michigan
HB 5281 (2023)
Michigan passed HB 5281 in May 2026, which put guardrails in place to regulate TPLF in the state. Under the legislation, funders must register with the state and disclose their funding agreements in the relevant litigation. Funders are also restricted from making litigation-related decisions, a provision that aims to stop the hijacking of lawsuits by outside investors with only monetary interests. Lastly, the bill caps the earnings from awards and protects national security interests by barring foreign adversaries from funding litigation.

Montana
SB 269 (2023)
The Litigation Financing Transparency and Consumer Protection Act, enacted in 2023, requires entities who wish to engage in litigation financing to register with the office of the secretary of state. It also bars financiers from paying commissions for referrals, charging excessive interest rates, and caps the amount financiers can receive at 25% of any final judgment, settlement, etc. Additionally, financiers are prohibited from making any decision related to the litigation itself, including decisions about hiring/firing counsel and litigation strategy; foreign adversary or country of concern entities and individuals are prohibited from funding litigation. Disclosure of these agreements is mandatory regardless of discovery requests.

This legislation is more far-reaching and comprehensive than most other states, as shown by the cap on proceeds which a third-party financier might receive from any judgment, verdict, or settlement. Montana’s 2023 reform also impacts class action litigation funding and imposes a fiduciary duty upon the funders.

SB 511 (2025)
The 2025 act amends and revises the 2023 Litigation Financing Transparency and Consumer Protection Act, clarifying key defined terms, expanding upon the restrictions placed on third-party litigation funders, and protecting privileged and proprietary consumer information and data.

Nebraska
Neb. Rev. Stat. §§ 25-3301 - 25-3309
In Nebraska, litigation funders must register with the state and funding contracts must include the total dollar amount to be repaid by the consumer, in 6-month intervals for 36 months, including all fees and the annual percentage rate. Furthermore, the state legitimizes civil litigation funding companies with a list of prohibited acts, including the stipulation that a funding entity shall neither pay nor accept any attorney commissions or referral fees. Civil litigation funders were content to become a regulated industry within the state of Nebraska, as they helped to inform the legislative process and clarify the legitimacy of TPLF. In 2025, Nebraska initiated several amendments to their TPLF that required mandatory disclosure of funding agreements and provided the Secretary more authority over management of civil litigation funding.

Nevada
Nev. Rev. Stat. ch. 604C (2021)
In 2019, Nevada passed a bill creating a new chapter in Nevada Revised Statutes that governs consumer litigation funding. Litigation funders must be licensed. Consumer litigation funding amounts cannot exceed $500,000 per consumer, per legal claim. The law also requires that the amount a consumer must repay may not exceed the funded amount plus charges not to exceed a rate of 40% annually. The funding contract must disclose the maximum amount to be assigned by the consumer to the litigation funder and a payment schedule listing all dates and the amount due at the end of each 180-day period from the funding date. In 2023, NV SB179 was introduced in Nevada that imposed several requirements on civil litigation funding. One significant requirement was a mandate that the funding contracts be visible to attorneys and judges in civil cases “without formal discovery”.

North Carolina
HB 315
North Carolina became the first state to issue an outright ban on third-party litigation funding agreements in June 2026. The bipartisan bill issues a near-blanket ban on outside party funding for litigation, with narrow exceptions for contingency fees, immediately family assistance, and non-profit legal services groups, to name a few. The Attorney General or injured parties are authorized to bring actions to recover damages, including up to $50,000 in civil penalties for each violation.

This unprecedented bill is seen by many as a win for North Carolina consumers, as it restores the legal justice system to its core function, rather than allowing it serve as a market for investment and speculation. The North Carolina ban could spur support for pending legislation in other states such as California, Illinois, and Colorado.

New York
AB 9442
Enacted in January 2026, Assembly Bill 9442 amends existing financial services and consumer protection laws to regulate third-party litigation funding in the state. Funder and financiers are prohibited from providing or receiving commissions for referrals, influencing litigation-related decisions, charging the consumer more than 25% of the proceeds, and providing more than $500,000 in funding.

Violations of the provisions include a waiver of right to the assigned proceeds and penalties, not exceeding $5,000 per violation, which accrue to the State of New York. Funders must also register with the state and submit annual reports specifying the number of contracts, the amount funded, etc.

Ohio
Ohio Rev. Code § 1349.55
In 2008, Ohio instituted a series of requirements governing non-recourse civil litigation advance contracts. This legislature overturned the judgment in the Rancman case, which held that “a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance.” The legislation determined that non-recourse funding contracts are legal so far as they follow the legislative contractual rules outlined in the statute. The legislature emphasized that if a dispute were to arise between funder and litigant, the responsibilities of the litigant’s attorney must be in congruence with the state’s code of Professional Conduct.

Recent amendments to Ohio’s existing statutory framework are pending signature by the governor; among them are requirements that litigation funders register in the state, cannot collect referral fees or commissions, and a prohibition on entering consumer litigation funding agreements with individuals or entities not domiciled in the United States.

Ohio law requires funding contracts to include the total dollar amount to be repaid by the consumer, in 6-month intervals for 36 months, including all fees and the annual percentage rate of return, calculated as of the last day of each 6-month interval, including frequency of compounding.

Oklahoma
Okla. Stat. tit. 14A, art. 3, pt. 8
In Oklahoma, litigation funders must obtain a license from the state’s Department of Consumer Credit. The law requires funding contracts to include a payment schedule that contains the funded amount and charges and lists all dates and the amount due at the end of each 180-day period from the funding date until the due date of the maximum amount due by the consumer to satisfy the amount owed under the agreement. Oklahoma also signed a bill that prevented foreign litigation funding through the Foreign Litigation Funding Prevention Act in order to provide greater transparency and address ethical concerns with foreign power influence.

Tennessee
Tenn. Code Ann. Tit. 47, ch. 16
Tennessee law requires litigation funders to register with the state and establishes strict limitations on the fees and the amount of interest that can be charged to consumers. Funders are prohibited from charging an annual fee that is more than 10% of the original amount of money provided to the consumer. Additionally, the term of funding transactions is limited to 3 years, and the maximum yearly fees funders can charge consumers (which are separate from the annual fee and include underwriting fees and other charges) are limited to a maximum of $360 per year for each $1000 of the unpaid principal amount of funds advanced to the consumer. In 2026, Tennessee amended the TPLF requirements to provide stricter restrictions on foreign funding and prevent commercial litigation financiers from impacting settlement or litigation decisions.

Utah
HB 280
Utah’s HB 280 amended, enacted, and repealed portions of existing Utah law under Title 13, Chapter 57. The reforms most notably require maintenance (litigation funding) providers to register with the Department of Consumer Protection, impose disclosure requirements, prohibit maintenance agreements with involving foreign entities or persons of concern, restrict the decision-making powers of maintenance providers, and establish enforcement mechanisms and penalties for violations. These reforms are comprehensive and further include an annual reporting requirement due on April 1 of each year. As part of its consumer protection provisions, it also grants consumers the right to recission with no penalty, so long as the consumer returns any funds received. H.B. 280 was part of a larger tort reform push within Utah and was signed around the same time as H.B. 330 and H.B. 591, which aim to tackle frivolous litigation in the state.

Vermont
Vt. Stat. Ann. tit. 8, ch. 74
Vermont requires litigation funders to be licensed with the Vermont Department of Financial Regulation. In addition to disclosure and contract requirements, litigation financiers are required to file annual reports containing information related to the number of contracts entered into, the dollar value of funded amounts to consumers, the dollar value of charges under each contract (itemized and including the annual rate of return).

West Virginia
W. Va. Code. Ch. 46A, art. 6N
In 2019, West Virginia amended the West Virginia Consumer Credit and Protection Act to include a new article, Article 6N. Under the new law, litigation funders are required to register with the West Virginia Secretary of State. Funding contracts must disclose the total funded amount provided to the consumer and the total amount due from the consumer, in 6-month intervals for 42 months. West Virginia law also stipulates that the contract must not charge an annual fee of more than 18% of the original amount provided to the consumer. Furthermore, the law requires the consumer to disclose the existence of a funding transaction and produce a copy of the contract without waiting for the defendant to request it. In 2024, West Virginia made significant amendments to its Consumer Litigation Financing Act requiring automatic mandatory disclosure of litigation funding requirements without any formal discovery requests. West Virginia was one of the first states to take on a more aggressive automatic approach.

West Virginia’s approach to TPLF has caused some proponents of the practice to point out that such strict regulations are likely to disincentivize the funding industry from doing business in the state. For example, the Alliance for Responsible Consumer Legal Funding, a litigation funding trade group, has characterized West Virginia’s legislation as “cap[ing] interest rates so low that funders have mostly stopped doing business in [West Virginia].”

Wisconsin
Wis. Stat. § 804.01(2)(bg)
In 2018, Wisconsin became the first state to mandate the disclosure of litigation funding agreements. Wisconsin law requires parties, even in the absence of a discovery request, to ‘provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise’.

Liability and Insurance

Many individuals in the insurance industry have expressed concerns over TPLF. Some have argued that the practice is directly contributing to an increase in the phenomenon known as “social inflation”, which is an increase in insurance payouts and higher loss ratios than can be explained by economic inflation alone. In 2021, Swiss Re published a report titled US litigation funding and social inflation which describes how litigation funding is a primary driver of social inflation. Essentially, TPLF motivates litigants to file and prolong lawsuits, in the hopes of achieving a greater payout. Longer cases typically increase claim costs in part because of higher legal expenses and, in cases where a third-party funder is involved, compounded interest on the litigation finance. Higher claims costs raise insurance premiums and can reduce the accessibility of liability coverage. Consumers ultimately bear the burden of these increased costs.

To learn more about Social Inflation, please reference a report co-authored by the RAA entitled, It’s Not Just the Weather: The man-made crises roiling property insurance markets

Litigation

There have been a series of cases, both in the United States and abroad, that have explored and expanded upon the issue of third-party litigation funding. Oftentimes, the common law doctrines of champerty and maintenance are implicated in such cases. Maintenance and champerty doctrines date back to medieval England where wealthy individuals would provide financial support to plaintiffs in exchange for a share of the recovery. This practice was seen as a form of meddling in the legal system and was consequently prohibited. Today, champerty and maintenance laws have been largely abolished or modified in most jurisdictions. However, some jurisdictions do have restrictions on TPLF based on these doctrines.

The question remains: is it legal for a third-party funder to support litigation in which the funder has no legitimate interest in the claim? Either way, this practice remains controversial: viewed as both an asset to modern litigation and, conversely, a threat to the ethics and transparency of the legal system at large.

Australia

The High Court of Australia set one of the most influential precedents for litigation funding in 2016. In Campbells Cash and Carry Pty Ltd. V. Fostif Pty. Ltd., the High Court held, by a 5:2 decision, that litigation funding is not an abuse of power nor is it discordant to public policy. A joint judgment explained that litigation funding does not violate the law in jurisdictions that had abolished maintenance and champerty as crimes and torts. Therefore, the Court asserted, there were no public policy questions beyond the enforceability of the agreement between plaintiff and funder. The claims against the third-party funder addressed many of the universal concerns about the practice: Can a third-party funder who seeks out claimants be found guilty of “officious intermeddling?” Does this sort of litigation give the funder too much power so that the litigant’s interests come secondary to those of the funder? And finally, is a third-party funder “a speculative investor in other person’s litigation” if the funder has obtained rights to litigate with the intent to profit from the outcome? While some of these questions remain unanswered in the U.S., The High Court of Australia upheld the legality of third-party litigation funding and set an authoritative example of its acceptance.

Several cases following Campbells helped narrow and clarify requirements for litigation funding for class action lawsuits. The Money Max Int Pty Ltd v QBE Insurance Group Ltd case introduced the concept of the common fund order (CFO), which allowed for funding costs to be spread across all class members rather than going through a process that individually signed up members. Later cases have clarified when and how CFO can be used.

The United Kingdom

In Arkin v. Borchard Lines Ltd. (2005), a U.K. court affirmed the use of litigation funding as a method to help ensure equal access to justice. The judgment and the principles it established were intended to balance access to justice against the need for fairness to successful opponents who should be able to recover their costs. In other words, TPLF can give people, with legitimate and meritorious claims, the opportunity to pursue legal action against an entity that they would not be able to pursue otherwise. This case similarly established what became known as the “Arkin cap,” which holds that each funding entity is only liable up to the amount of funding that it provided.

In a later case, Excalibur Ventures LLC v. Texas Keystone Inc., the court upheld its decision in Arkin v. Borchard Lines, reiterating that a funder is only liable to pick up the adverse costs of litigation up to the level of their financial investment in the failed litigation. Though the Arkin cap still holds in the U.K, questions of its appropriateness have arisen now that litigation funding has increasingly become a practice of big business. The court also upheld the legality of TPLF as “third-party funding is a feature of modern litigation.” Though the court recognized the issue of the unenforceability of some funding agreements, it lifted the cloud of uncertainty surrounding third-party litigation funding.

In 2023, the UK Supreme Court ruled in PACCAR that third-party litigation funding agreements (LFAs) are damages-based agreements (DBAs). Essentially, the court’s ruling classified third-party funders as “claims management services,” and were unenforceable unless they abided by DBA rules. This decision created great instability within the litigation landscape as parties needed to adjust existing agreements to achieve compliance. Subsequent governments, both Conservative and Labour alike, have attempted to pass reforms explicitly allowing but regulating LFAs, but no such reform has been passed.

The United States

In the United States, litigation funding has increased in popularity along with the emergence of big business funders. Among U.S. law firms, litigation funding has experienced massive growth since 2013, when the court made an influential decision on TPLF. It has especially exploded in the last few years, and is expected to continue to grow to exceed $61 billion in 2033.

In Patton Boggs LLP. V Chevron Corporation, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York was forced to rule on a case that affirmed the concerns of those seeking reform to the practice of litigation funding. In the Lago Agrio lawsuit against Chevron, a mass-tort environmental contamination suit was brought on behalf of Ecuadorians who claimed to have been harmed by the oil exploratory activities in Lago Agrio, Ecuador. New York-based plaintiff’s attorney Steven Donziger and his co-counsel obtained a $4 million investment to help prosecute the action from litigation funding company Burford Capital – a company mostly owned by hedge funds and mutual funds. Investors were promised a percentage of any monetary award. The final award issued by the Ecuadorian court was approximately $9 billion against Chevron, but Chevron subsequently sued Donziger in United States District for fraud in procurement of the judgment.

In a lengthy 2014 opinion, District Court Judge Lewis Kaplan blocked U.S. courts from being used to collect the $9 billion on the basis that the decision in the Lago Agrio case had been obtained by corrupt means. Specifically, Judge Kaplan stated that Donziger and the Ecuadorean lawyers corrupted the case by arranging to write the multibillion-dollar judgment themselves, promising the Ecuadorean judge $500,000 to rule in their favor, and by submitting fraudulent evidence. In the decision, Judge Kaplan referred to the plaintiffs’ counsel’s “romancing of Burford” in relation to a litigation strategy of filing proceedings against Chevron in several jurisdictions, resulting in increased defense costs. This ruling again emphasizes the risks of third-party litigation funding.

With regard to the disclosure of litigation finance agreements, courts across the country have frequently denied discovery requests for TPLF information based on Federal Rule of Evidence 401 which necessitates that the information must have direct bearing on the claim before the court. In Eastern Profit Corporation Ltd. V. Strategic Vision US (2020), the Southern District of New York noted that “courts in this Circuit have rejected claims for [litigation funding] documents where the only asserted relevance is that they will permit the requesting party to peer into its adversary’s strategy” or “the adversary’s rationale for accepting or rejecting settlement offers.” However, oftentimes it can be difficult to determine the difference between “adversary strategy” and “any fact that is of consequence to the determination of the action”, as outlined by Fed. R. Evid. 401. Other courts have demonstrated a similar reluctance to full disclosure of TPLF information. In Miller UK Ltd. v. Caterpillar, Inc. (2014), the Northern District of Illinois found that litigation funding documents are only discoverable if they are relevant to an element of an existing claim or defense in the lawsuit. Additionally, in Mondis Technology, Ltd. v. LG Electronics Inc. (2011), despite employing alternate reasoning, the Eastern District of Texas reached a similar conclusion when it found that “documents and slide presentations created for potential investors … prepared in assistance with [plaintiff's] counsel for the purpose of aiding future litigation” were beyond the scope of discovery based on the attorney work product doctrine. These courts stand in opposition to others who have implemented rules requiring the disclosure of third-party funding information.

Litigation in Indiana shows the extent to which third-party backers can control trials. In their antitrust suit against Pilgrim’s Pride, Sysco alleged that Burford, their litigation funder, was holding their trial hostage by refusing to allow for a reasonable settlement in Sysco’s antitrust dispute. The 7th Circuit recently ruled in Carina Ventures v. Pilgrim’s Pride, No. 25-1110 that the settlement agreement reached by email between Sysco and Pilgrim’s Pride was not final. This decision directly overturns the lower court’s ruling that the settlement, agreed to by all named parties, could not be objected to by a third-party backer. Sysco previously transferred its rights to the lawsuit to Carina Ventures, a Burford affiliate, who can now continue the litigation into which they have already invested $140 million.

Disclosure of agreements is also a highly contested matter, subject to much litigation and legislation. In Lituma v. Liberty Coca-Cola Beverages LLC, the New York Supreme Court of Appeals held that in personal injury lawsuits, defendants were able to obtain disclosure of third-party litigation funding sources. This underscored the movement away from previous policies that restricted these disclosures. Federal District Courts in New Jersey, Delaware, and the Northern District of California have begun to adopt rules or issue standing orders that parties to the suit receiving third-party funding disclose the identities of the funders. Even if the identity is disclosable, courts have regularly held that contents of the agreements may be protected by attorney work-product doctrine.

Future Outlook

The regulatory and legal proceedings that have occurred over third-party litigation funding have broadened its scope significantly. The anticipated outlook for TPLF is relatively promising, with continued growth and expansion expected in the near future. As litigation funding continues to gain recognition as a viable option for financing lawsuits, the industry is likely to see increased demand and activity.

Though the practice of third-party litigation funding is expanding, its future remains unclear in the United States. Supporters hold that TPLF increases access to justice in civil litigation matters, whereas opponents argue that this practice establishes an uneven playing field and threatens the integrity of our legal system. Nevertheless, as third-party litigation funding continues to expand abroad, so too will it continue to expand in the United States.

The regulatory environment for litigation funding continues to evolve, with various jurisdictions introducing or considering regulations to govern the industry. While regulatory oversight can bring more legitimacy and stability to the industry, it also introduces compliance requirements and potential challenges for litigation funders. As such, the anticipated outlook for TPLF will depend, in part, on how the regulatory landscape develops and how the industry adapts to potential regulatory changes.

Overall, the practice of litigation funding in all forms should be closely monitored as it continues to grow at home and abroad, and as regulators and legislators act to either restrict the practice or allow it to foster.