Third party litigation funding (TPLF) is when an outside party gives plaintiffs money during a lawsuit in exchange for a share of any recovery, helping cover legal fees and living expenses while a case moves forward. TPLF has only existed in the U.S. for the last 30 years or so, yet The Perryman Group, an economic consultancy, estimates it costs the health services industry more than $4.23 billion and 32,350 jobs each year.
For medical professionals, healthcare organizations, legal practitioners, and others involved in or following medical malpractice litigation, that matters because litigation funding can change how long cases last, how settlement negotiations unfold, and what defendants ultimately pay. Its opponents argue that TPLF is contributing to social inflation in insurance claims, increasing the time it takes to settle cases, and leading to higher malpractice insurance premiums. On the flip side, proponents contend that by providing financing to plaintiffs, TPLF allows small businesses and less-affluent individuals to take on deep-pocketed defendants.
Below, we’ll examine what TPLF includes, the main funding models, how it affects medical malpractice claims, the arguments for and against it, the legislation and disclosure rules aimed at curbing abuses, and the ways it can shape settlement strategy, liability, and insurance costs.
In third party litigation funding, an outside party provides money to plaintiffs during legal proceedings in exchange for a portion of the payout should the plaintiffs win. The funder usually recoups their investment and reaps a profit only if plaintiffs win. For this reason, litigation funders will carefully analyze all aspects of the cases before deciding whether to, in effect, bet on the claimant.
For medical malpractice cases, there are three categories:
This provides individual plaintiffs with money to cover living expenses while their lawsuits are pending. It acts as a loan, and the sum is typically less than $10,000. Some funding companies charge a flat fee to be paid back on top of the loan amount should the plaintiff win, while others charge as much as 60% interest compounded monthly.
Because the funding is non-recourse, the claimant does not have to pay back the loan if they lose the case, which for many people justifies the high interest rate.
Sometimes called investment funding, this sort of financing entails a private equity fund or other large-scale investor financing part or all of a plaintiff’s malpractice suit. In practice, litigation finance is now a multi billion dollar industry, and in 2023 funders had about $15 billion invested in U.S. litigation. While an investor might back a single case, it’s estimated that two-thirds of TPLF funds go toward portfolio funding, or investing in a number of a law firm’s malpractice suits.
With portfolio funding, the investment typically exceeds $2 million and the funder’s returns are based on the aggregate value of the settlements rather than on a case-by-case basis, allowing the investor to hedge its bets. Often the investor has the right of approval over settlement decisions.
Sometimes considered a subset of or ancillary to commercial litigation funding, this variety involves an investor paying for the claimant’s medical treatment so long as it is from a specified network of providers. In exchange, the plaintiff transfers rights to the recovered medical expenses to the funder.
While this sort of loan or lien can enable plaintiffs to receive medical treatment without dealing with insurance companies, the providers in the TPMF’s networks often do not negotiate rates as insurance companies do, resulting in inflated costs that, in turn, lead to higher payouts. What’s more, some TPMF arrangements require the claimant to pay back the funder even if they lose their case.
When legal reformers and healthcare organizations discuss the damaging effects of third party litigation financing, they usually focus on commercial litigation funding, particularly portfolio funding. Many point out that champerty, a form of third party financing of litigation, was forbidden in English common law since the Middle Ages. The same was true of maintenance. These common law doctrines historically limited outsiders from funding civil litigation because of concerns about interference.
Many of the arguments against TPLF are the same as those used to prohibit champerty and maintenance centuries ago:
Carina Ventures v. Pilgrim's Pride can be viewed as an example of how commercial litigation funding can work against the claimant. In 2022, food distributor Sysco had settled an antitrust case against poultry processor Pilgrim’s Pride for $50 million. However, Burford Capital, parent company of Carina Ventures, sued to negate the agreement. Having invested $140 million since 2019 to fund Sysco’s antitrust suits, Burford felt the settlement was too low.
Although the 7th U.S. Circuit Court of Appeals ruled in February 2026 that the settlement wasn’t binding and Burford could pursue greater damages, one of the judges wrote, “Having turned the courtroom into a trading floor, and calculated that continued litigation was more profitable than settlement, Burford wrested total control over the settlement of Sysco’s claims. And but for this legal maneuvering, this litigation could have been resolved long ago.” This antitrust litigation illustrates that funders are not merely passive investors and can control lawsuits or fund litigation in ways that delay resolving disputes.
Because TPLF companies are investing large sums, they demand even larger returns. That often means being willing to go to court in hopes of receiving a significant jury award rather than settling out of court. This lengthens case timelines as well as raises the costs of malpractice insurers, who in turn pass on the increased expenses to physicians in the form of higher premiums.
In addition, to avoid being sued for diagnostic errors, failure to diagnose, or other forms of medical malpractice, physicians are more likely to practice defensive medicine. They might order medically unnecessary tests, consultations, and procedures solely to establish a paper trail proving they undertook every possible safeguard. These additional procedures drive up healthcare costs and patient insurance premiums. To further minimize the chances of being sued, physicians might also avoid treating high-risk patients or performing risky surgeries.
Given the outsize effect TPLF can have on a plaintiff’s case and potential award, one might expect law firms to be required to disclose any such arrangements.
In fact, Senate Judiciary Committee Chair Chuck Grassley, along with Senators Thom Tillis, John Kennedy, and John Cornyn, did introduce the Litigation Funding Transparency Act in February 2026. Among other provisions, this would mandate disclosure of third party financing of litigation in mass tort and class-action suits and prohibit third parties from influencing litigation strategies or settlement negotiations. Reform efforts also grew out of national-security concerns: in 2022, ILR warned about TPLF’s implications, and in 2023, 14 state attorneys general urged the DOJ to address related risks to the judicial system.
Senators and representatives have proposed similar legislation previously, but none have passed. Organizations such as the National Taxpayers Union argued that earlier proposals were part of broader legal reform meant to strengthen transparency in civil justice and protect the justice system, while critics said some bills were too broad and threatened privacy and free-speech rights in addition to making legal recourse unaffordable for some.
As of July 2026, federal law does not mandate disclosure of litigation funding to plaintiffs, nor do most states, though some courts have adopted a standing order requiring disclosure. There are more than a few exceptions, however:
Even in jurisdictions where disclosure of TPLF is not mandatory, defense teams can file motions for disclosure. In such instances, plaintiffs typically argue that revealing funding agreements would breach attorney-client privilege or the work product doctrine, which protects materials prepared for a case from being viewed by the opposing counsel. A judge can rule, however, that a defendant’s right to know if a third party has the power to approve or negate a settlement outweighs the claimant’s rights, especially where disclosure may identify the real party in interest and any third party funders with a financial interest in the outcome.
A district court or chief judge may also impose a standing order requiring disclosure of funding sources or the terms of a funding agreement.
Once aware that a third party has invested in a plaintiff, the defense team can adjust its strategy. For instance, instead of spending time and energy trying to reach a settlement that a funder is unlikely to accept, the defense might devote more resources to auditing the claimant’s medical records in search of inflated costs and unnecessary procedures. Disclosure also matters because foreign entities or foreign interests could be influencing the case behind the scenes.
Possible indications that a plaintiff is being funded by a third party include:
Defendants who notice such red flags should consider requesting discovery to learn of any TPLF agreements.
Disclosure is not the only aspect of third party litigation financing that jurisdictions have legislated. For instance, as of 2026, Georgia requires TPLF companies to register with the state’s Department of Banking and Finance, prohibits financers from receiving a greater share of the outcome than the plaintiff after the latter has paid attorney fees and costs, and forbids funders from participating in referral arrangements regarding medical treatments, among other restrictions meant to curb litigation abuse and protect American businesses from distorted incentives in funded cases.
New York State also implemented TPLF restrictions in 2026. As in Georgia, funders cannot refer plaintiffs to specific medical providers, and consumer litigation funding companies must register with the state. In addition, the financers cannot receive more than 25% of any recovery funds. Montana likewise caps funders’ recovery at 25% of settlements.
Back in 2015, Arkansas began treating consumer litigation funding contracts as loans, with interest charges capped at 17%. Today Tennessee law, in addition to requiring registration, limits funders’ annual fee to no more than 10% of the original financing amount.
These regulations aim to stave off social inflation and protect plaintiffs while helping protect the legal system from abusive control and opaque outside financing. North Carolina has gone even further, enacting in 2026 the country’s first ban on commercial third party litigation funding.
Third party litigation funding (TPLF) is a funding arrangement in which third party funders provide financial assistance for some or all of a plaintiff’s legal, medical, or living expenses in exchange for a financial interest in the outcome.
Consumer TPLF involves lending a claimant money, usually less than $10,000, for living or medical expenses while they are litigating a case. Most plaintiffs are involved in personal injury or mass tort litigation. Commercial TPLF occurs when a hedge fund, private equity firm, or other large institutional investor uses litigation finance to cover litigation expenses in exchange for a share of the settlement or award. Unless the plaintiff is a large corporation, the third party litigation funding companies typically make the arrangement with the law firm rather than the plaintiff.
Third party litigation financing is legal in the United States. In 2026, however, North Carolina enacted the first state ban on commercial TPLF, and a number of other states have implemented legislation requiring caps on the amount of money investors can receive and other limitations.
Because third party litigation funding companies often invest millions of dollars, they might require the right to approve or deny settlements and exercise significant control over litigation strategy in hopes of going to court and winning a more sizable award. This lengthens case timelines and contributes to the ongoing increase in nuclear verdicts and social inflation, which in turn leads to higher insurance premiums.
What’s more, in jurisdictions without caps on how much of the reward a funder can receive, funders may take 20-40% of the proceeds from a case, creating a major financial impact by reducing the plaintiff’s recovery.
Proponents say that third party financing of litigation can help level the legal playing field for individuals and small businesses fighting large, deeply resourced corporations, whether the funds go toward litigation or living expenses.
In addition, when TPLF agreements are on a non-recourse basis, plaintiffs pay the funder only if they win a settlement or award, reducing their risk.
Third party medical funding (TPMF) entails an investor paying for the plaintiff’s medical treatment from a specified network of providers. Usually the funds are treated as a lien against a portion of the eventual settlement or award; other times they’re a loan that the claimant needs to pay back even if they don’t win the case.
Third party litigation funding, on the other hand, typically covers legal costs, and so long as the agreement is on a non-recourse basis, the plaintiff owes the investor nothing if they don’t win the case.
Some states have made disclosure of TPLF agreements mandatory; others require disclosure only upon request. Even in states without disclosure requirements, however, defendants can request discovery in order to learn of such agreements so that they can tailor their strategy accordingly.
Third party litigation funding has led to longer case timelines and a willingness on the part of claimants to hold out for larger awards, contributing to the increase in social inflation and nuclear verdicts, and a subsequent rise in malpractice insurance premiums, while critics also warn it can invite foreign influence into the civil justice system.
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