By Lewis Nibbelin, Research Writer, Triple-I
North Carolina has enacted a measure to ban third-party litigation funding, the first of its kind in the country amid nationwide efforts to rein in the practice.
Signed into law on Monday after near-unanimous support in the state legislature, the Prohibit Litigation Investments Act makes it “unlawful for a person to engage in litigation investment” or “to furnish litigation investment to a party or counsel of record in a civil proceeding” in the state. Exclusions to the law include contingency-fee arrangements, insurer indemnification or defense obligations, pro bono funding from nonprofit organizations, and other forms of financing not contingent on suit outcomes.
“For too long, dark money has supported the legal system abuse tactics of billboard attorneys, funding an excessive volume of lawsuits through largely undisclosed arrangements,” said Triple-I CEO Sean Kevelighan. “Greater transparency helps shine a light on these financial interests and addresses practices that can contribute to legal system abuse, drive up claim costs, and ultimately increase insurance premiums for consumers and businesses.”
TPLF occurs when outside investors profit from lawsuits by paying legal costs in exchange for a share of the settlement or judgment if the suit wins. In practice, this encourages prolonged and unnecessary cases and can culminate in extreme nuclear verdicts of $10 million or more. TPLF contributes to the $6,664 in added annual costs for the average American household through excess litigation.
States diverge on nonlawyer involvement
North Carolina’s new law is the latest in a wave of TPLF-related legislation building on a record number of bills introduced nationally last year to improve TPLF transparency. While many states have continued to focus on disclosure, some are targeting alternative business structures and nonlawyer-owned law firms as sources of undue courtroom friction.
Colorado, for instance, recently passed a law that prohibits legal fee or revenue sharing with outside investors and increases restrictions on ownership. Both it and a 2025 measure regulating foreign TPLF agreements were backed by a coalition that included the Colorado Trial Lawyers Association, a partnership the organization explained is aligned with their shared interest in upholding the integrity of the legal system.
Similar bills are moving through the California and Illinois state legislatures, each of which have also received support from several state bar associations. Triple-I expanded its legal system awareness campaign in both states earlier this year to help demonstrate the link between their insurance affordability struggles and legal system abuse.
Emerging challenges to nonlawyer ownership and investments contrast from regulatory changes in recent years that expanded these practices in some states. In 2020, Utah launched the nation’s first regulatory “sandbox” permitting nontraditional legal service providers who operate under the supervision of the state supreme court, including firms invested in and/or owned by nonlawyers. That same year, Arizona repealed its rule barring nonlawyer fee sharing and ownership, later unveiling its own program in 2021 to facilitate alternative business structure arrangements.
As policymakers seek ways to protect consumers from rising costs, it’s important to learn from states that are succeeding. Florida has a long history of problems caused by insurance fraud and litigation abuse that contributed to upward pressure on insurance rates. Recent reforms to check these practices have made the Sunshine State a national model for the kinds of market improvements states can expect through tort legislation.
By limiting third-party investor influence in litigation, North Carolina and Colorado may soon serve as additional blueprints to address the root causes of rising costs, rather than merely treating the symptoms.
Learn More:
How AI Helps Insurers Combat Fraud, Legal System Abuse
States Take the Lead on Third-Party Litigation Funding Reform
Legal System Abuse Awareness Campaign Spreads Across U.S.
Florida Premiums Drop Amid Post-Reform Stability
New Consumer Guide Highlights Economic Impact of Legal System Abuse and the Need for Reform