Third-party litigation funding has become an increasingly important driver of social inflation, which has resulted in rapidly growing casualty claim severity. State lawmakers are finally responding, with reforms ranging from North Carolina’s first-in-the-nation ban on third-party litigation funding to new disclosure, registration, and foreign participation restrictions in states across the country. These reflect a broader push to bring more transparency and accountability to litigation financing and to better contain the effects of social inflation and legal system abuse.
Lockton’s view is that while these measures may ultimately help moderate litigation-related costs, they are unlikely to provide immediate relief for insurance buyers. For now, buyers should expect elevated loss costs and continued underwriting discipline, including capacity management and closer scrutiny of individual risks.
That means renewal strategy, risk controls, claims management, and program design will remain critical to differentiation and success for insurance buyers.
Rising claim costs puts outside funding in the spotlight
Social inflation — the increase in claim costs beyond general economic inflation — remains a significant and long-term challenge for liability insurers and buyers. One major contributor has been third-party litigation funding, or TPLF. Through TPLF, outside investors can finance lawsuits in exchange for a share of settlements or judgments.
TPLF arrangements can take many forms. For example, consumer legal funding generally involves an advance to an individual plaintiff, often to help cover living expenses while a claim is pending, with repayment tied to the outcome. Commercial litigation finance typically provides capital to businesses, law firms, or claimholders to fund legal fees, case expenses, or portfolios of matters. Other arrangements may provide financing directly to law firms or monetize expected recoveries.
Critics argue that TPLF can encourage more aggressive litigation strategies, complicate settlement discussions, extend claim duration, and increase defense costs and jury awards. Supporters maintain that it can improve access to the legal system and provide plaintiffs with financial resources to pursue legitimate claims.
TPLF reform movement advancing
The current tort reform debate is increasingly focused on transparency, consumer protections, funder influence, and foreign participation in TPLF programs. Reform efforts have historically moved slowly, but recent state actions suggest momentum may be building.
On June 22, North Carolina Governor Josh Stein signed into law the Prohibit Litigation Investments Act, making North Carolina the first state to broadly prohibit TPLF in its court system. The bill makes it unlawful for outside investors to finance litigation in exchange for a financial interest tied to a lawsuit’s outcome.
Other states have stopped short of outright bans, instead focusing on disclosure, registration, consumer protections, fee limits, and restrictions on foreign participation. Most recently, on July 7, Ohio Governor Mike DeWine signed House Bill 105 into law,. Under HB 105:
Litigation funders must register with the Ohio attorney general before operating in the state.
Funding agreements are subject to disclosure requirements. Funders must provide clear disclosures to the attorney general regarding fees, repayment terms, and funding conditions.
Referral fees and certain relationships between funders, lawyers, and healthcare providers are prohibited.
Foreign governments, foreign corporations, and foreign investors are barred from participating in litigation funding arrangements.
Since the start of 2025, Georgia, Mississippi, and Tennessee have each enacted legislation requiring disclosure of funding arrangements or funder identities. Several of these measures have also limited funder influence, referral arrangements, or participation by foreign governments and adversaries.
The Arizona Supreme Court, meanwhile, has amended rules of civil procedure in the state, requiring parties in civil cases to disclose the identity, financial terms, and degree of strategic control of any third-party litigation funders at the outset of litigation.
States pursue broader liability reforms
Since the start of 2025, several states have enacted broader reforms aimed at changing how liability is determined, damages are calculated, and claims are presented at trial:
Georgia enacted a broad tort reform package that narrows negligent security liability, strengthens requirements around the calculation and presentation of damages, and allows courts to separate liability and damages into different phases of a trial.
South Carolina overhauled its joint and several liability framework. Defendants found less than 50% at fault are generally responsible only for their proportionate share of damages and juries may consider the fault of nonparties when allocating responsibilities.
Louisiana lawmakers tightened comparative fault standards in auto accident litigation and limited recoverable medical expenses in personal injury cases to amounts actually paid by insurers or Medicare.
Utah enacted a series of measures addressing liability protections for regulatory conduct, judicial review in constitutional challenges, and financial disclosure requirements for judges.
New York enacted sweeping auto insurance and tort reforms in its FY2027 budget, including a 51% modified comparative fault standard for motor vehicle collisions, sequenced trials, limits on pain-and-suffering awards for drivers who are uninsured or driving while intoxicated/impaired, and new penalties for staged accidents.
Additional reforms could follow, including at the federal level. In February, Senator Chuck Grassley (R-IA) introduced the Litigation Funding Transparency Act of 2026, which proposes to regulate third-party lawsuit financing. If passed, the bill would require disclosure of outside investors in federal class actions and multi-district litigation, restrict funders from controlling legal strategies, and bar their access to confidential discovery materials. The bill is currently pending review in the Senate Committee on the Judiciary.
Market challenges persist for insurers and buyers
The continuing wave of reforms reflects growing national concern that TPLF can increase litigation costs, prolong claims, and allow outside investors to influence litigation strategy. It also reflects broader concerns about social inflation, large verdicts, and perceived abuses within the legal system.
Over time, broader adoption of similar legislation could help moderate some litigation-related cost drivers. But the timing, scope, and measurable impact of these reforms remain uncertain, and insurers are unlikely to materially change their liability underwriting posture until loss trends demonstrate sustained improvement.
In the near term, third-party litigation funding, social inflation, large verdicts and settlements, and adverse loss development will remain key considerations in liability placements. Even where reform efforts improve transparency or help rebalance the playing field, buyers should not assume they will quickly reverse the pricing, attachment-point, capacity, or coverage pressures that have reshaped the liability marketplace.
Casualty insurance costs continue to rise in 2026. As we highlighted in our most recent Lockton Market Update, rates rose 2.6% for general liability and 5.8% for auto liability, on average, according to data from the Council of Insurance Agents & Brokers. Median lead umbrella price per million rose 8.0%, according to Lockton data, while median excess casualty price per million rose 7.6%.
As a result, preparation and differentiation remain critical. Buyers that can clearly articulate their risk controls, claims posture, loss trends, and program strategy will be better positioned to navigate continued market scrutiny than those relying on legislative reform to change conditions.
Risk and insurance strategies for a difficult liability market
Liability insurance buyers should regularly review deductibles, attachment points, limits, and overall program structure to ensure coverage remains effective as claim severity rises. As part of this review, buyers should take a close look at loss assumptions and actuarial inputs, evolving exposures, and operational developments. They should also model alternative structures, which may offer more stability and more efficient ways to use risk capital.
It’s equally important that organizations adopt strategies to reduce high-severity exposures, particularly in product and auto liability. Telematics, cameras, speed governors, enhanced driver training, and other targeted controls can help reduce loss frequency and severity while strengthening underwriting narratives. Buyers should maintain ongoing dialogue with insurers and use credible performance data to demonstrate how they are effectively managing risk.
Effective claims management also matters. Early triage and timely decisions on settlement versus litigation can prevent claims from developing into significantly more costly matters.
Finally, strong performance in workers’ compensation and other profitable lines can create valuable leverage to support more difficult liability placements. A broader, portfolio approach, supported by a clear view of overall insurer relationships, may help produce better outcomes than negotiating each line in isolation.
