North Carolina Bans Third-Party Litigation Funding. Here’s What Insurers Need to Know.

North Carolina recently became the first state to ban third-party litigation funding (TPLF), a practice in which outside investors provide money to plaintiffs or law firms in exchange for a return if the case is successful.

This new law is important for insurers because it removes a key source of outside capital that has helped fund certain types of litigation, and it can potentially influence how some cases will be financed in the future.

Although this legislation is an important first step, it doesn’t completely solve the problem.

One thing we've learned from monitoring digital risk across the insurance industry is that changing laws doesn’t necessarily eliminate the underlying activity. Opportunists are always ready to adapt by changing how they market, recruit claimants, and build referral networks.

The North Carolina legislation deserves attention, but we believe the more important question is how opportunists’ strategies will evolve in response and what insurers should watch for next.

The Good Stuff

The good news for insurers (and policyholders) is that this is the strongest action taken by any state to date to limit TPLF.

North Carolina's new law prohibits litigation funding where repayment depends on the outcome of a civil proceeding. In other words, outside investors can’t finance a lawsuit in exchange for a share of a settlement, judgment, or other financial return tied to the success of a case.

The law also includes enforcement provisions. This means that many funding agreements are now void, the North Carolina Attorney General can seek civil penalties, and parties harmed by an unlawful arrangement can pursue damages.

For insurers, this removes one source of outside financial support that can affect how some lawsuits are financed and resolved.

The Limitations

The legislation doesn’t prohibit every type of financial relationship connected to litigation, including:

• Traditional loans that are repaid regardless of the outcome of a case
• Contingency fee arrangements
• Certain nonprofit assistance
• Other financing structures specifically permitted under the law

In other words, the legislation restricts only ONE funding model. It doesn’t eliminate every source of outside financial support connected to litigation, which means opportunists will likely adjust their strategies rather than simply disappear.

What Happens Next

If one source of capital is no longer available because of the new law in North Carolina, we expect some opportunists to look for other ways to support claimant acquisition and case development. That doesn't necessarily mean more litigation, but it may change where investments are made and how potential claimants are reached.

Based on what the 4WARN team has seen in the past, we'll be watching digital activity closely to see if opportunists begin shifting their investments into areas such as:

• Paid search and social advertising
• Claimant acquisition marketing campaigns
• Lead-generation companies
• Referral and affiliate relationships
• Law firm marketing activity
• Expansion into neighboring jurisdictions
• AI-generated content designed to attract potential claimants

We’ll also be watching to see whether investments move away from directly funding lawsuits and toward activities that help identify and recruit potential claimants. This could include increased spending on plaintiff advertising, call centers, referral networks, and case-acquisition companies.

Another area to watch is activity expanding beyond North Carolina. Opportunists may strengthen referral relationships, increase marketing activity, or expand into neighboring states where funding laws are different.

While the law limits TLPF, it doesn’t eliminate every form of financial support. Traditional law firm loans, portfolio financing, self-funded litigation by large law firms, and certain nonprofit or family funding arrangements may continue.

To be clear, we aren’t suggesting that all of these relationships are problematic. But changes in digital marketing, referral activity, and online targeting often provide early signals that strategies are shifting long before they appear in claims data or litigation trends.

Why Insurers Should Pay Attention

The impact of North Carolina's law won't be measured simply by the number of TPLF agreements that disappear, but by how the litigation ecosystem responds.

If investment shifts toward digital marketing, claimant acquisition, or new business partnerships, insurers may see those changes online before they show up in claims data or litigation costs.

That's why monitoring digital activity is just as important as monitoring legislative activity.

4WARN’s View

North Carolina has taken an important first step by restricting TPLF. We’ll be watching closely to see whether this ultimately changes litigation activity or if capital, marketing strategies, and claimant acquisition efforts quickly adapt.

The real story won’t be whether TPLF disappears, but where the investment will go next. That’s where insurers should focus their attention, and where 4WARN will continue monitoring for early signs of changing litigation risk.