North Carolina Just Told Investors to Get Out of the Courtroom

Something very interesting just happened in North Carolina.

Unless you spend your days following insurance legislation, liability trends, or the increasingly complicated economics behind American lawsuits, there’s a pretty good chance you didn’t hear much about it.

You probably will.

On June 22, 2026, North Carolina Governor Josh Stein signed House Bill 315, the Prohibit Litigation Investments Act. With that signature, North Carolina became the first state in the country to enact a comprehensive ban on third-party litigation investment.

At first glance, that may sound like something only attorneys and insurance executives need to care about. In reality, it touches a much bigger issue that has quietly been getting the attention of insurers, risk managers, corporations, lawmakers, and some very sophisticated investors. Because lawsuits aren’t always just lawsuits anymore.

Sometimes they’re investments.

Yes, People Invest in Lawsuits

The concept is called third-party litigation funding, and once you understand how it works, you begin to understand why North Carolina decided to do something about it.

Imagine someone files a lawsuit with the potential for a significant recovery. Pursuing that case could take years and require substantial money for attorneys, experts, depositions, discovery, and other expenses.

Now imagine an outside investment company provides some of that money. In exchange, the investor receives a financial interest tied to the outcome of the case. If the litigation produces a recovery, the investor receives an agreed-upon return. Depending on the arrangement, if the case fails, the investor may lose its investment.

The investor didn’t suffer the injury. It isn’t being sued. It wasn’t standing in the warehouse, driving the truck, negotiating the contract, or doing anything else that originally created the dispute. It simply has money riding on what happens next.

Supporters argue that litigation funding gives plaintiffs access to the resources necessary to pursue legitimate cases against defendants with much deeper pockets. Critics see outside capital entering the legal system with a financial incentive to maximize the value of litigation.

North Carolina has now taken a side.

Why Insurers Have Been Watching

Insurers have been dealing with a problem commonly referred to as social inflation, where liability claim costs rise faster than ordinary economic inflation would explain. Enormous jury awards, rising litigation expenses, changing attitudes toward corporations, aggressive plaintiff strategies, and so-called nuclear verdicts have all become part of that conversation.

Now add outside investment. Suppose an insurer believes a liability case can reasonably be settled for $2 million. The plaintiff has to decide whether accepting that money today makes more sense than spending another year or two litigating a case with an uncertain outcome.

But what happens if outside funding removes some of that financial pressure?

Continuing the lawsuit may become easier.

That doesn’t mean the claim isn’t legitimate or that anyone has done anything improper. It simply means the financial dynamics have changed.

RIMS, the Risk Management Society, publicly applauded North Carolina’s new law and pointed to concerns that third-party litigation funding can contribute to conflicts of interest, prolonged litigation, higher settlement costs, and increased legal expenses for commercial organizations.

That’s why the insurance industry is paying attention.

North Carolina Didn’t Ask Investors to Disclose. It Told Them to Leave.

This is where North Carolina’s approach gets especially interesting.

Lawmakers could have required disclosure of litigation funding agreements. They could have established registration requirements or limited how much an investor could receive. They didn’t. They banned the investment itself.

Under the new law, litigation investment generally involves providing money for fees, costs, or expenses associated with a pending or potential civil proceeding when repayment or compensation depends in some way on the outcome.

Contracts that violate the law are void. The state attorney general can seek injunctions and civil penalties of up to $50,000 per violation. The legislation also provides a private right of action for someone injured by a violation and allows substantial statutory damages in certain circumstances.

Perhaps even more interesting is how little political disagreement there was about it. The legislation passed the North Carolina House unanimously and received only one opposing vote in the Senate before Governor Stein signed it.

These days, getting that many lawmakers to agree on anything is worth noticing. There is also an important distinction. North Carolina has not banned contingency-fee arrangements between attorneys and clients. Law firms can still advance permitted litigation expenses, insurers can fulfill their contractual obligations to defend policyholders, and ordinary loans aren’t prohibited simply because the borrower is involved in litigation.

The target is specifically outside investment where the financial return depends on what happens in the case.

There Is Another Side to the Argument

Consider a small company with a strong legal claim against a billion-dollar corporation. It may have excellent attorneys and compelling evidence. What it may not have is enough money to spend the next three years fighting a company capable of financing an army of lawyers.

Supporters of litigation funding argue that outside capital can level that playing field. Without it, the party with the deepest pockets can sometimes win simply by surviving longer.

North Carolina lawmakers ultimately reached a different conclusion. They decided that allowing unrelated investors to acquire a financial interest in civil litigation creates risks the state no longer wants in its court system. Now the question is whether other states agree.

This Could Become Much Bigger Than North Carolina

Other states have been examining litigation funding, with lawmakers considering everything from disclosure requirements to broader restrictions. Litigation finance has attracted attention at the federal level as well.

All of this is happening while insurers are already concerned about rising liability costs. Recent research examining U.S. jury verdicts and settlements found a striking divergence after 2020. After accounting for differences among cases, researchers estimated that jury verdict severity more than doubled between 2020 and 2024, while settlement inflation was considerably more restrained.

That research does not establish that litigation funding caused the increase, and it would be a mistake to suggest otherwise. But it helps explain why insurers are examining anything that could influence litigation severity.

When jury awards rise and lawsuits become more expensive to defend, the effects eventually reach insurance buyers through pricing, underwriting, capacity, limits, or the amount of risk companies are expected to retain themselves.

Insurance pricing doesn’t exist in a vacuum. What happens in courtrooms can eventually show up at renewal.

Pay Attention to What Happens Next

Most employers will probably never sit across a table from a litigation funding company. They are nevertheless connected to this issue through the liability policies they purchase. That’s what makes North Carolina worth watching.

Twenty years ago, if a company received a multimillion-dollar demand from a plaintiff, the important questions were fairly predictable. What happened? What are the damages? How strong is the evidence? What is the case realistically worth? Those questions still matter. But insurers and risk professionals may increasingly find themselves wondering about something else happening behind the scenes.

Who else has money riding on this lawsuit?

North Carolina just decided that, within its borders, the answer shouldn’t be an outside investor. Now we get to see whether the rest of the country agrees.

Sources & Further Reading

North Carolina General Assembly – Session Law 2026-14, House Bill 315, Prohibit Litigation Investments Act
https://www.ncleg.gov/EnactedLegislation/SessionLaws/HTML/2025-2026/SL2026-14.html

North Carolina General Assembly – House Bill 315 Legislative History and Bill Information
https://www.ncleg.gov/BillLookUp/2025/H315

Reuters – “North Carolina Becomes First State to Ban Third-Party Litigation Financing” (June 23, 2026) https://www.reuters.com/legal/government/north-carolina-becomes-first-state-ban-third-party-litigation-financing-2026-06-23/