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What Is Third-Party Funding and Why Should Insurers Care?
Third-party litigation funding (TPLF) is an arrangement in which an outsideinvestor, typically a hedge fund or dedicated litigation-finance company, advancesnon-recourse capital to a plaintiff or plaintiff's counsel for a share of any eventual settlement or verdict. It matters to insurers because it changes case economics: a funded plaintiff can afford addedmedical treatment, income replacement and costly expertsotherwise out of reach, and that staying power tends to produce longer litigation and higher settlement demands.
Funders target the jurisdictions and case types most likely to produce a large recovery, then front the capital plaintiffs' counsel need to litigate aggressively rather than settle early. The activity is no longer marginal: global litigation finance was an approximately $19 billion industry in 2024, projected to reach nearly $34 billion by 2032, per PW Consulting's most recent market analysis.
How Can Insurers Identify and Respond to Undisclosed Funding?
Insurers can protect themselves by raising the funding questionat the outset of a claim, using targeted discovery and deposition practice to surface it and framingrequests around thecase law the court in the relevant jurisdiction actually follows ratherthan treating funding as an afterthought once litigation is underway. In practice: flag the possibility in the initial case assessment; raise it at the pretrial conference under any applicable federal disclosure rule or local standing order; send discovery requests asking specifically whether a funder is involved,what settlement authority it holds and whetherit has ties to treating providers or experts; and question plaintiffs and corporate representatives about funding at deposition.
Importantly, courts remain split on how far these discovery tactics are able to go. Some courts are willing to demand the production of funding agreements and payment records to the plaintiff and treating physicians as relevant to bias, while other courts find compelling such production improper absent a showing of how it would support or undermine a specific claim or defense. The takeaway: broad requests for “all funding agreements” rarely succeed; requests tied to a concrete issue such asbias, damages or who controls settlement farefar better.
While litigation funding often presents additional difficulties, defense lawyers and their clients alike should still focus on the overall facts of the case and not be distracted from the relative risk of the claim.
Are Carriers Required to Protect Lien Rights of Litigation Funders?
Funders' liens are contractual, not statutory, so their priority against other lienholders depends on state law, timing and howthe lien is characterized. For the insurer writing the check, the practical question is narrow but consequential: is there any duty to identify or withhold for satisfaction ofthese liens and canthe carrier be sued later if it doesn't?
By the time a case settles, proceeds are often already claimed by competing interests: the plaintiff's attorney, medical providers,Medicare/Medicaid, other insurers’ subrogation interests and, with increasing frequency, the litigation funder, typically secured by a contractual lien or assignment, sometimes reinforced by a UCC-1 filing.Because of this, it is importantfor carriers to be aware of any local lawsgoverning funders’ liensand protect themselves from future litigation by pursuing the disclosure of any potential funding liens early in the case.
The Future of Litigation Funding
Regulation is accelerating, but unevenly, and the legal landscape will likely stay fragmented and jurisdiction-specific for some time.
- State disclosure laws: Georgia, Kansas, Indiana, Louisiana,Montana, West Virginia and Wisconsinnow require disclosure of funder identity and terms; New York has its own transparency reform.
- North Carolina's outright ban: On June 22, 2026, North Carolina enacted Session Law 2026-14 (H.B. 315), the first outright TPLF ban, with AG enforcement and treble damages, exempting insurers' own defense/indemnity obligations and ordinary contingency fees.
- Federal legislation: H.R. 7015 and S. 3826 (2026) would both require funding agreements to be disclosed in federal civil litigation.
What Are the Key Takeaways for Insurance Carriers?
- Build it into the file from day one: Make discovery requests specific and tied to bias, damages or settlement authority, not a broad demand for “all funding agreements.”
- Track jurisdiction-specific rules: Disclosure obligations and state statutes vary widely and change quickly; confirm current requirements before relying on any general rule of thumb.
This article is general information about a developing area of law, not legal advice on any specific claim; consult qualified coverage counsel on the rules in your jurisdiction.
