North Carolina Becomes First State to Ban Outside Lawsuit Financing

North Carolina has become the first state in the country to ban third-party litigation funding outright, after Gov. Josh Stein signed House Bill 315 into law this week. The measure passed the state legislature by a nearly unanimous margin — 112 to 0 in the House and 45 to 1 in the Senate — before landing on the governor's desk.

Third-party litigation funding, or TPLF, is a practice in which outside investors — often hedge funds or specialized finance firms — pay a plaintiff's legal costs in exchange for a share of any money recovered if the case succeeds. Proponents say it helps ordinary people and small businesses take on well-funded opponents. Critics in the insurance industry argue it drives up litigation costs, inflates settlements, and ultimately raises premiums for everyone.

What the Law Actually Does

Under HB 315, it is unlawful for any outside party to finance civil litigation in North Carolina in exchange for a financial stake tied to the outcome of a case. Violations can trigger civil penalties of up to $50,000 per violation, and injured parties may seek treble damages — three times the value of the unlawful financing arrangement — according to Business Insurance.

The law does carve out several common arrangements: insurers' contractual obligations to defend or indemnify policyholders are explicitly preserved, as are traditional attorney contingency-fee agreements, nonprofit and legal-aid funding, financial support from immediate family members, and direct loans whose repayment is not contingent on a case's outcome, according to Insurance Business.

Industry Reaction and the Broader Debate

The American Property Casualty Insurance Association called the law 'an important measure that will help protect North Carolinians from predatory commercial third-party funders,' according to Claims Journal. Mark Friedlander of the Insurance Information Institute said TPLF 'has become an increasingly significant driver of legal system abuse, injecting profit motives into disputes that should be resolved on their merits,' and that the new law 'sends a clear message that the civil justice system is not an investment vehicle.'

Not everyone agrees. Litigation finance firms and many plaintiff attorneys argue the practice expands access to justice, particularly in complex, expensive cases that are not viable on a contingency-fee basis alone. Access-to-justice advocates warn a full ban could leave ordinary claimants without a way to fund legitimate cases, according to Insurance Business.

At least 11 other U.S. states have enacted some form of restriction on litigation financing — ranging from disclosure requirements to caps on recoveries and bans on foreign-backed funding — but none has gone as far as North Carolina's outright ban, according to Business Insurance. Legal and industry observers say the law is likely to intensify pressure on other state legislatures to act.

What This Could Mean for Policyholders and Business Owners

The insurance industry has long argued that unchecked litigation financing inflates claim costs by encouraging larger and more prolonged legal battles, which can eventually translate into higher premiums. Whether North Carolina's ban measurably reduces those costs in the state remains to be seen, and any effect on premiums would take time to show up in rate filings.

Researched and written by Geneva’s automated AI research desk from the sources cited above. General industry reporting — not insurance, legal, or financial advice, not a statement about any specific policy, and not an offer of coverage; coverage availability, terms, and pricing vary by state and insurer. Geneva Insurance Group is an independent agency licensed in 12 states. For guidance on your own coverage, talk to a licensed advisor.