The decade-long war between the third-party litigation funding sector and the commercial insurance industry reached a turning point when North Carolina became the first state to ban commercial litigation funding on June 22.
While some legal and business publications framed the law as the start of a nationwide domino effect, that momentum has failed to materialize.
Instead, most states are choosing to build guardrails rather than insurmountable walls. Recent statutes target mandatory transparency
, prohibit funder control over strategy and cap investor payouts. According to data compiled b
y the U.S. Chamber of Commerce, 20 states have enacted laws regulating the industry, including 13 states that passed restrictions within the last two years alone. None of these states sought an outright ban.
The stakes are high for both parties. The TPLF industry maintains that its investments give cash-poor companies the financial war chest needed to pursue justice
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against massive corporate adversaries. Conversely, insurance lobbies, the Chamber and corporate defense groups contend that litigation funding fuels runaway jury verdicts and settlements that drive up premiums for businesses and consumers alike.
Going into next year, the political battlefield will expand into heavily contested states like Texas and Florida, where each side is expected to spend substantial mon
ey to pass or block legislation. The strength of the plaintiffs’ trial bar in both states suggests that new bills will focus on regulating the TPLF industry rather than destroying it.
Nevertheless, even the remote possibility of strict prohibitions has spurred the TPLF sector to protect its investment pipelines. In response, funding firms have expanded beyond individual lawsuit financing toward instituti
onal strategies involving private equity and management services organizations (MSOs)—independent management companies set up to handle a law firm’s back-office business infrastructure. By adding these corporate structures to their
portfolios, litigation funders can back high-stakes cases through an indirect channel that is currently shielded from direct TPLF disclosure rules.
The maneuvers ensure the conflict will intensify through 2027. State legislators will be compelled to address questions over who controls legal strategy: retained counsel or outside investors. Foreign funding channeled through private equity will weigh heavily in these debates, as will strict mandatory disclosure rules designed to force unredacted funding agreements into the open.
“Our usual set of industry opponents—the U.S. Chamber of Commerce and its allies in the insurance, pharmaceutical and technology sectors—are using a state-by-state strategy,” said David Perla, Vice Chair at Burford Capital. “In some states, they push for full disclosure rules that allow them to engage in discovery sideshows that intentionally slow down litigation. In other states, they push for restrictions related to foreign funding. Wherever possible, they’re setting up roadblocks.”