Third-party litigation funding has transformed the US legal and insurance landscape since its emergence in the 2000s. Initially facing scepticism due to prohibitions against third-party funding of lawsuits for profit, after the 2008 financial crisis investors seeking returns uncorrelated with volatile stock markets fuelled rapid growth. Some estimates project litigation funding investments at US$18.9bn by the end of 2025, with the global market expected to reach US$67bn annually by 2037.

Litigation funders often back portfolios of mass tort and product liability cases, prolonging disputes and driving oversized jury awards. Some believe litigation funding encourages weaker claims, drives social inflation and slows settlements. At the same time, carriers are either leaving high risk markets or raising premiums. In commercial auto, product liability and mass torts, claim costs are rising faster than premium growth, as funders enable prolonged litigation or larger settlements.

No comprehensive federal oversight governs litigation funding in the US, but momentum is building. The proposed Litigation Transparency Act would require disclosure of all funding agreements in federal cases. Similarly, the proposed Tackling Predatory Litigation Funding Act aims to “impose a new tax on profits earned by third-party entities that finance civil litigation and curb predatory practices”. In 2025, the US Senate Finance Committee considered punitive excise taxes on proceeds from cases using litigation funding, and some states are exploring rules to enhance transparency.

Looking ahead, federal and state initiatives will likely mandate more disclosure to ensure public trust. As capital inflows grow, funders will target complex, high-value disputes, pressuring insurance rates and coverage terms. And insurers will leverage advanced risk modelling, refine exclusions, and explore new coverages, such as adverse judgment insurance for the funders themselves.

Litigation funding is a double-edged sword. Insurers and policymakers must promote fair disclosure rules, invest in robust data analytics, and create a framework that preserves funding’s benefits while mitigating its excesses, ensuring sustainability for all stakeholders.

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