North Carolina Enacts the First US Ban on Third-Party Litigation Funding: House Bill 315 Signed June 22, 2026, With $50,000 Penalties and Treble Damages

North Carolina has become the first state to prohibit third-party litigation funding outright. Hunton Andrews Kurth, in an analysis dated June 26, 2026, reports that Governor Josh Stein signed House Bill 315, the "Prohibit Litigation Investments Act", on June 22, 2026. Third-party litigation funding is the practice in which an investor that is not a party to a case provides capital to a plaintiff or law firm in exchange for a share of any recovery. Proponents say it expands access to justice, and critics raise concerns about transparency, ethics and the influence of outside investors on strategy and outcomes.

The Act's core prohibition is simple. According to Hunton, no person may engage in litigation investment in North Carolina, and no person may provide litigation investment to a party or attorney in a civil proceeding in the state. The statute defines litigation investment as providing money, through a direct payment, advance, loan, investment or other financial arrangement, to cover the fees, costs or expenses of a pending or potential civil proceeding, in return for a right to compensation that depends, in whole or in part, on the outcome. "Civil proceeding" is defined broadly, covering civil actions, arbitrations, mediations, administrative proceedings and other proceedings meant to resolve civil claims.

Timing and scope are specific. The article does not state a separate effective date. Instead, the prohibition applies to civil proceedings commenced on or after June 22, 2026 and to litigation investment contracts entered into, renewed or amended on or after that date. Contracts made before the signing therefore appear to be outside the ban unless they are renewed or amended, though readers should consult the statute and counsel for how existing arrangements are treated.

The Act contains nine exceptions. Examples listed by Hunton include attorney contingency fee arrangements, advancing litigation costs and expenses, and pro bono representation, in each case under the North Carolina Rules of Professional Conduct; financial assistance from family members; and certain funding arrangements involving nonprofit organisations pursuing claims for themselves or their members. These carve-outs preserve ordinary practices such as lawyers working on contingency. The article does not address consumer-level litigation funding specifically, such as pre-settlement advances to individual plaintiffs, so it is unclear from this source how the statute treats those.

Enforcement is strong. The Attorney General may sue to enjoin violations, and courts may impose civil penalties of up to $50,000 per violation. In addition, individuals harmed by a prohibited litigation investment have a private right of action. A prevailing plaintiff may choose either common-law damages or statutory damages equal to three times the amount of the potential litigation investment in the funding arrangement. Treble damages create a significant deterrent for funders and could also expose law firms that take such funding.

Other states have chosen different paths. Hunton says Indiana, Ohio, Tennessee, Nebraska, Vermont and Nevada treat funding as consumer finance, with written agreements, disclosures, attorney acknowledgment and limits on funder control. Wisconsin, Louisiana and Washington focus on disclosure at the start of litigation. New York, in early 2026, adopted a comprehensive framework with disclosure requirements, consumer rights and limits on funder recoveries. At the federal level, the Litigation Funding Transparency Act, introduced in February 2026, is pending before the Senate Judiciary Committee; if enacted, it would require disclosure of funding in certain federal matters, including class actions and mass torts, and all foreign funding. North Carolina's ban is therefore at one end of a spectrum from disclosure to prohibition.

Why does this matter for insurance? The insurance industry has been a leading advocate of restrictions on litigation funding, arguing that funding encourages more and larger claims and contributes to "social inflation", the rise in liability claim costs above general inflation. That argument is reflected in the current market: Marsh reports that US casualty rates are still rising, by 6% in the third quarter, even as other lines fall. The sources reviewed here do not quantify the effect of litigation funding on claims costs, and the case for and against remains contested. Funders and some legal groups argue that funding helps ordinary people and small businesses pursue claims against larger defendants who would otherwise outspend them.

The practical consequences are uncertain. Lawyers and funders will want to know how the law applies to cross-border funding arrangements, to cases pending in North Carolina but funded elsewhere, and to funding for out-of-state cases involving North Carolina parties. The article does not address these questions. Court challenges are possible, and the sources reviewed do not report any. Other state legislatures may study the law, and insurers may cite it in discussions about liability pricing, though any effect on premiums would take time to appear and cannot be predicted from these reports.

For businesses, the ban reduces one source of litigation financing risk in North Carolina. For plaintiffs, it may limit options for financing complex cases beyond contingency fees. Anyone affected should seek legal advice, because the statute is new and untested. Authors of the Hunton analysis are Alexandra B. Cunningham, Merideth Snow Daly and Jane G. Legris.