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Third-party litigation funding is officially illegal in North Carolina.
On June 22, 2026, Governor Josh Stein signed House Bill 315, the Prohibit Litigation Investments Act, making North Carolina the first state in the country to ban third-party litigation funding outright instead of simply requiring disclosure or placing restrictions on the practice.
If you don't operate in North Carolina, it's tempting to assume this doesn't affect you – but laws like this rarely stay put. They often become a model for other states, and North Carolina lawmakers passed this one almost unanimously. This is a sign of how much concern has grown around a practice many believe is making lawsuits larger, longer and more expensive for the businesses caught in the middle.
Here's what third-party litigation funding is, why North Carolina banned it and why every business owner should be paying attention.
What Is Third-Party Litigation Funding?
At its simplest, third-party litigation funding is when an outside investor – someone with no connection to the lawsuit itself – pays a plaintiff's legal expenses in exchange for a share of the recovery if the case succeeds.
In theory, third-party litigation funding helps level the playing field. Not everyone with a legitimate claim can afford to take on a well-funded defendant through months or even years of litigation. Outside funding can give those individuals the financial resources to pursue a case based on its merits instead of walking away because they run out of money.
Why Is Third-Party Litigation Funding Controversial?
The challenge is that third-party litigation funding can look very different in practice.
Funders aren't participating because they were harmed or because they have a legal interest in the dispute – they're making an investment. If the case wins or settles, they receive a return. If it doesn't, they lose the money they invested. That structure naturally encourages one goal: maximizing the financial outcome.
Imagine a litigation fund invests $200,000 into a case that later reaches what both parties consider a fair $500,000 settlement. The business may be ready to resolve the dispute and the plaintiff may be satisfied with the outcome – but the fund evaluates the case differently. If it believes continuing the litigation could produce a significantly larger recovery, it has a financial incentive to push for more.
Multiply that dynamic across thousands of funded cases, and the broader impact becomes easier to see. Settlements can climb, lawsuits may take longer to resolve and the businesses defending those claims often absorb the added costs.
Those concerns are exactly what North Carolina lawmakers set out to address.
What Does North Carolina's Third-Party Litigation Funding Ban Do?
House Bill 315 makes it unlawful to provide or receive third-party litigation funding in North Carolina through direct funding, loans or any arrangement where repayment depends on the outcome of a legal claim. The law applies broadly to lawsuits, arbitration, mediation and administrative proceedings.
The legislation does include several important exceptions. Contingency-fee attorneys, law firms advancing litigation costs, insurers fulfilling their defense obligations, nonprofit legal aid organizations and loans that are not tied to a case's outcome can all continue operating as they do today.
Instead, the law specifically targets outside investors who finance legal claims solely in exchange for a financial return.
The legislation also carries significant enforcement measures. Any prohibited litigation funding agreement is automatically void, and the North Carolina Attorney General can seek civil penalties of up to $50,000 per violation. Additionally, anyone harmed by an unlawful funding arrangement may recover up to three times the amount involved along with attorneys' fees.
Why Should Businesses Care About Third-Party Litigation Funding?
Even if your business never sees the inside of a courtroom, third-party litigation funding can still affect you in two important ways: your insurance costs and what happens in your own state next.
Start with insurance. As we discussed earlier, third-party litigation funding creates a financial incentive to pursue larger settlements and keep cases going longer in search of bigger payouts. Over time, that's become one of the factors contributing to a broader trend known as nuclear litigation.
Nuclear litigation refers to legal strategies that drive exceptionally large settlements and jury awards, sometimes resulting in nuclear verdicts worth tens or even hundreds of millions of dollars. While third-party litigation funding isn't the only force behind that trend, it can add to the pressure that pushes claims higher.
Read our blog that dives deeper into nuclear litigation and how to protect your business here.
The negative effects go beyond the courtroom as well. Since insurers have to account for larger claims when pricing coverage, that expense is ultimately spread across policyholders through higher premiums. Even businesses that never face litigation can end up paying more because of the broader legal environment.
It’s also important to pay attention because of what can happen outside of North Carolina.
As we mentioned earlier, laws like this rarely stay where they start. States often look to one another when crafting new legislation, especially when a bill passes with overwhelming bipartisan support. While there's no guarantee other states will follow North Carolina's lead, this legislation could influence similar proposals across the country.
In other words, even if this law doesn't apply to your business today, it easily could in the future.
How Can Businesses Protect Themselves From Third-Party Litigation Funding Risk?
North Carolina's new law is an important development, but legislation alone isn't a risk management strategy – especially for businesses operating elsewhere.
The best protection comes from managing legal and contractual risk proactively instead of waiting until a claim arises. That means evaluating areas like legal exposure alongside your safety program, insurance strategy and long-term business planning rather than treating it as a separate issue.
That's the foundation of holistic risk management. Every part of your business influences the others, and legal risk is no exception.
If you're unsure where your business may be exposed to litigation risk, whether it involves third-party litigation funding or something else entirely, that's exactly the kind of gap we help identify.
