North Carolina Enacts Sweeping Ban on Litigation Financing, Setting New Regulatory Precedent
North Carolina has become the first U.S. state to implement an outright ban on third-party litigation financing, a move that national insurance groups are championing as a critical step to protect businesses and consumers from what they describe as predatory practices. Governor Josh Stein signed House Bill 315 into law this week, prohibiting entities from engaging in or providing litigation investment within the state.
The American Property Casualty Insurance Association lauded the legislation, stating in a Wednesday release that it is a “crucial measure that will help protect North Carolinians from predatory commercial third-party funders looking to profit off lawsuits at the expense of businesses and consumers.” Mark Friedlander of the Insurance Information Institute echoed this sentiment, asserting that “third-party litigation investment has become an increasingly significant driver of legal system abuse, injecting profit motives into disputes that should be resolved on their merits.” He added that North Carolina’s action “sends a clear message that the civil justice system is not an investment vehicle.”
This landmark legislation significantly escalates restrictions previously seen in other states. While at least 11 U.S. states have introduced some limitations on litigation financing, including disclosure requirements and prohibitions on foreign influence, North Carolina’s law takes a more absolute stance. Georgia, for instance, enacted a bill in 2025 requiring financiers to register with the state and disclose principals and foreign affiliations, while also barring funders from influencing legal decisions and mandating discovery of financing agreements. A Florida bill this year, which aimed to ban conflicts of interest, restrict funder control over legal representation and witnesses, and limit recovery amounts, ultimately failed to pass.
The newly enacted North Carolina statute, effective July 1, declares it “unlawful for a person to engage in litigation investment in this State or to furnish litigation investment to a party or counsel of record in a civil proceeding in this State.” The law empowers the state attorney general to pursue legal action against violators, with penalties set at $50,000 per infraction. Notably, the legislation also provides a private right of action for individuals harmed by a violation, allowing them to seek damages, with the option to elect between common law damages or statutory damages equivalent to treble the contemplated litigation investment, plus court costs and reasonable attorneys’ fees.
House Bill 315, which garnered bipartisan support in the North Carolina General Assembly with only one dissenting vote, was reportedly driven by significant lobbying efforts from the North Carolina Chamber of Commerce. Chamber President Gary Salamido credited Senator Buck Newton and Representative Sarah Stevens for their roles in advancing the measure, asserting that it will bolster North Carolina’s business competitiveness and curb excessive litigation.
Critics of third-party litigation funding argue that it fuels an increase in lawsuits, transforming manageable disputes into protracted and costly legal battles for businesses and insurers. Conversely, proponents and some plaintiffs’ firms contend that such funding is essential for enabling injured parties to pursue justice and compensation when they might otherwise lack the financial means or access to legal representation.
The ban comes at a time when the litigation finance market, valued at approximately $20 billion, was already experiencing headwinds. Bloomberg reported that 2025 was a challenging year for litigation finance, with some hedge funds and investors withdrawing due to regulatory uncertainties, declining trial payouts and settlements, and extended litigation timelines. A federal measure, HR 7015, known as “The Protecting Third Party Litigation Funding From Abuse Act,” which would mandate full disclosure and court review of funding contracts, has seen limited progress in the U.S. House of Representatives.
The North Carolina law includes specific exclusions, clarifying that it does not affect an insurer’s contractual obligations for defense or indemnification, nor does it prohibit family members from assisting with costs. It also permits direct loans to parties, law firms, or attorneys, provided repayment is not contingent on the outcome of a civil proceeding.
Beyond litigation financing, HB 315 also introduced significant increases to workers’ compensation benefits. Maximum awards for face and head disfigurement injuries have been raised from $20,000 to $40,000. Compensation for bodily disfigurement, particularly when linked to employability or earning capacity and not covered elsewhere, has doubled to $20,000. The maximum award for external or internal organ injuries has also been increased to $40,000.
