Third-party litigation funding is now illegal in North Carolina. Governor Josh Stein on June 22, 2026 signed HB 315 — Session Law 2026-14, the Prohibit Litigation Investments Act — making North Carolina the first state in the US to enact an outright ban on the practice. The law takes effect in July 2026 and lands at a moment when casualty insurers are grappling with a record $15.8 billion in adverse reserve development in 2024 and $62 billion in cumulative adverse development since 2015.
What HB 315 Actually Outlaws
The statute’s core prohibition is sweeping. It is unlawful for any person to engage in litigation investment in North Carolina or to furnish litigation investment to a party or counsel of record in any civil proceeding in the state. The definition leaves little room for interpretation: litigation investment means the provision of money for the fees, costs, and expenses of or related to a pending or potential civil proceeding in exchange for a right to receive repayment or other consideration that is contingent in any respect on the outcome.
Enforcement teeth are substantial. The state attorney general can impose civil penalties of $50,000 per violation, and injured parties may recover damages and elect treble the full potential litigation investment amount as statutory damages. Those thresholds are designed to make compliance the only rational choice for professional funders.
The law carves out a set of preserved practices: contingency-fee arrangements between clients and attorneys, insurer contractual obligations to defend or indemnify, nonprofit and legal-aid funding, direct financial support from immediate family, and loans with non-contingent repayment terms all remain lawful. The carve-outs are narrow and carefully drafted to protect legitimate access-to-justice mechanisms while sealing off the speculative capital the legislature targeted.
The bill’s path was unconventional. HB 315 began as the Gift Card Theft and Unlawful Business Entry Act before being completely rewritten by the Senate Judiciary Committee on June 18, 2025 to address litigation funding. Critics on the plaintiffs’ bar called it a legislative bait-and-switch, arguing the transformation bypassed normal committee scrutiny. That objection did not slow the vote: the House passed HB 315 112-0 and the Senate 45-1.
The $62 Billion Reserve Problem Behind the Ban
To understand why casualty underwriters welcomed HB 315, the reserve data tells the story. US P&C insurers have been chasing their tails on casualty loss picks for a decade. Adverse casualty reserve development hit a record $15.8 billion in 2024, bringing the cumulative total since 2015 to $62 billion. That number does not reflect natural catastrophe losses — it reflects the systematic mispricing of liability risk, driven in part by the capital that litigation funders bring to bear on commercial cases.
The upstream driver is legal system abuse. A joint analysis by the Insurance Information Institute and the Casualty Actuarial Society quantified the damage: legal system abuse drove between $231.6 billion and $281.2 billion in additional liability insurance losses over the past decade, above and beyond what economic inflation alone would explain. Commercial auto liability alone absorbed $52.0 billion to $70.8 billion in loss inflation from legal system abuse, representing 22.6% to 30.8% of booked losses in that line.
Nuclear verdicts — awards above $10 million — are the most visible symptom. In 2024, nuclear verdicts surged 52% year-over-year to 135 cases, totaling $31.3 billion in awards, itself a 116% increase from the prior year. Litigation funders are widely cited by defense practitioners as amplifiers of nuclear-verdict risk: they allow plaintiffs to hold out for top-end settlements by providing operating capital during lengthy litigation, shifting negotiating leverage away from insurers and toward plaintiffs’ counsel. For P&C insurers managing the pricing discipline required to sustain recent underwriting gains, any structural reduction in loss-cost inflation translates directly to reserve adequacy.
The TPLF Industry NC Just Took On
North Carolina’s legislature did not pick a small target. The litigation funding sector has grown into a substantial financial industry in its own right. US litigation funders held approximately $16.1 billion in assets under management in mid-2024 and were projected to deploy $18.9 billion in 2025. Institutional capital from hedge funds, sovereign wealth vehicles, and private credit managers has poured into the space over the past decade, drawn by returns uncorrelated with traditional asset classes and a US tort system that generated $529 billion in costs in 2022, growing at approximately 7% annually.
For the funders, the NC ban is a direct threat to deal flow in a state with a significant commercial litigation docket. For casualty insurers, it is a data point — not a solution. CSAA Insurance Group’s chief legal officer put the coordination problem plainly in January 2026: no single carrier can meaningfully address litigation inflation on its own. Insurers have lobbied for legislative action precisely because underwriting and reserving changes can only partially offset a structural cost that enters via the legal system itself. The NC Chamber of Commerce backed HB 315 as a business climate issue, and the insurance industry aligned behind the chamber’s push.
A Patchwork of State Laws — and NC as the Outlier
North Carolina’s outright prohibition sets it apart from every other state that has acted on TPLF. Seven states — Georgia, Kansas, Indiana, Louisiana, Montana, West Virginia, and Wisconsin — have enacted TPLF disclosure laws, while California, Colorado, and Illinois are debating disclosure-only approaches. Disclosure requirements oblige funders and plaintiffs to reveal the existence of funding agreements to courts or opposing counsel; they do not restrict the funding itself. NC’s ban goes categorically further.
The divergence matters for insurers writing multistate casualty programs. A carrier pricing commercial general liability, commercial auto, or professional lines across the Southeast faces materially different loss-cost environments depending on which state’s courts hear a claim. If NC’s ban withstands expected legal challenges — funders have already signaled constitutional arguments around free speech and contract rights — other states with business-friendly legislatures may follow. If it is overturned, the disclosure-only track becomes the de facto ceiling of legislative ambition.
The reserving implications under either scenario are non-trivial for carriers with meaningful NC casualty exposure. In the short term, the $50,000-per-violation penalty and treble damages provision may push funders to route capital through jurisdictions without a ban, concentrating their activity in states where disclosure requirements are the only constraint. That displacement effect could actually worsen loss environments in states adjacent to NC, at least in the medium term. Actuaries building 2026 and 2027 loss picks will need to model jurisdictional TPLF exposure explicitly — something that the run-off market, already pricing legacy casualty adverse development, is watching closely.
For AIG and other carriers whose casualty underwriting income has recovered sharply on pricing discipline, the NC law is a structural tailwind — but only if it holds. Legal challenges are expected before the July 2026 effective date.
