North Carolina’s Landmark Law Prohibits Third-Party Litigation Financing

• By: Raaed Haddad
• June 25, 2026

North Carolina has taken a groundbreaking step in the fight against legal system abuse by becoming the first state in the nation to prohibit third-party litigation financing (TPLF).

On June 22, Gov. Josh Stein signed House Bill 315, the Prohibit Litigation Investments Act, into law following overwhelming bipartisan support in the North Carolina General Assembly. The measure passed unanimously in the House and received only a single dissenting vote in the Senate, reflecting broad concern about the growing influence of outside investors in the U.S. civil justice system.

TPLF occurs when investors—often hedge funds, private equity firms, foreign-backed investment entities or litigation finance companies—provide money to plaintiffs or their attorneys in exchange for a share of any future settlement or court award. The practice has evolved into a multi-billion-dollar industry that encourages excessive litigation, drives up settlement demands, prolongs lawsuits and increases costs for consumers and businesses.

According to Westfleet Advisors, 39 litigation funders are currently active in the U.S. commercial litigation market. In 2025 alone, those firms completed 346 new deals representing $2.8 billion in commitments, with an average transaction size of $8.1 million. As more outside capital flows into lawsuits, concerns have grown that investors—not plaintiffs—are increasingly influencing litigation strategy and settlement decisions.

North Carolina lawmakers concluded that the drawbacks of litigation financing outweighed any perceived benefits. The new law makes it unlawful for any person or entity to engage in litigation investment in the state or provide litigation financing to a party or attorney involved in a civil proceeding. Violators may face civil penalties of up to $50,000 per violation.

The legislation also includes several important exceptions, including pro bono legal funding, insurers fulfilling their defense or indemnification obligations, and loans or other financial support that are not contingent on the outcome of litigation.

The Independent Insurance Agents of North Carolina (IIANC) were front and center to help this legislation become a reality.

“When our Big ‘I’ federal lobbyist colleagues tasked the state trades to make addressing this issue a top priority, we immediately engaged with the coalition being put together by the North Carolina Chamber of Commerce and took an active role working with other business trades to push the legislation here,” said Joe Stewart, chief advocacy officer, IIANC.

Stewart also emphasized the importance of having independent agents serving as public officials. “Our five independent insurance agent members in the NC General Assembly were especially helpful, taking time to have conversations with fellow state House and Senate members about the impact not addressing third-party litigation financing could have on insurance rates—a topic they have significant credibility on among their legislative colleagues,” he said.

“This law sends a clear message that our civil justice system should serve policyholders and businesses—not outside investors seeking to profit from litigation,” said Nathan Riedel, Big “I” senior vice president of federal government affairs. “IIANC led the way in advancing this law, helping restore balance, curb unnecessary costs and protect consumers while also setting an example for other states confronting third-party litigation financing.”

The Big “I” has made addressing TPLF one of its top legislative priorities in recent years, advocating for increased disclosure, transparency and proper tax treatment of litigation financing and highlighting how hidden litigation financing can distort the civil justice system and contribute to rising insurance costs for consumers.

Meanwhile, the Big “I” and its state association partners have supported numerous efforts to increase transparency and accountability in litigation financing arrangements. While many states have focused on disclosure requirements and consumer protections, North Carolina has gone a step further by becoming the first state to prohibit the practice altogether. Furthermore, the overwhelming bipartisan support behind House Bill 315 suggests that concerns about litigation financing extend well beyond traditional political divisions.

North Carolina’s action could have implications far beyond its borders. As lawmakers across the country continue to examine the impact of legal system abuse on consumers and businesses, the state’s new law may serve as a model for future reforms.

Raaed Haddad is Big “I” director of federal government affairs.