Eight states have enacted third-party litigation funding disclosure requirements since 2024, and a federal bill sits in the Senate Judiciary Committee. The backdrop is a casualty reserve problem: US P&C insurers added $16 billion to prior-year liability estimates in 2024 reserve reviews, with $15.8 billion of casualty-specific adverse development, the highest on record. The laws differ enough that they will not produce one effect.

Key Takeaways

  • Eight states enacted since 2024: Georgia, Kansas, Indiana, Louisiana, Montana, West Virginia, Wisconsin and New York, across three structurally different regulatory models.
  • New York caps a funder's share at 25% of gross recovery, against consumer TPLF rates the NAIC has observed running from 15% to 124%.
  • Funded plaintiffs retain 43% of compensation against 55% unfunded, so a funded plaintiff needs roughly a 27% higher award to net the same amount.
  • $18 billion to $25.1 billion is the estimated global TPLF market in 2025, with roughly half deployed in the United States.
  • S. 3826 reaches class actions, MDL consolidations and actions of at least 100 cases, which leaves single-plaintiff litigation outside the federal framework entirely.

Eight States, and the Loss Backdrop

The enacting states are not a regional cluster. Georgia, Kansas, Indiana, Louisiana, Montana, West Virginia, Wisconsin and New York have all passed legislation since 2024, and Mississippi's Transparency in Consumer Legal Funding Act takes effect July 1, 2026 with a 30-day disclosure requirement for any foreign entity of concern. Utah passed comparable restrictions in March 2026, Colorado adopted rules effective August 2025, and Florida's SB 1396 cleared the Senate Judiciary Committee 8-2 in January 2026.

The financial context is what moved them. Beyond the $16 billion added to prior-year liability estimates in 2024 and Milliman's $15.8 billion of casualty adverse development, CAS and Triple-I put the decade's legal system abuse contribution at $231.6 billion to $281.2 billion in increased liability losses, inside Swiss Re's $62 billion of cumulative commercial liability development from 2015 to 2024.

The funding side has scaled to match. The global market reached an estimated $18 billion to $25.1 billion in 2025 with about half deployed in the US. As of 2022, 44 active funders held $13.5 billion under management and US deployment ran $3.2 billion, up 16% on the prior year.

Three Models That Restrict Three Different Things

The laws share a label and not a mechanism, which is why a countrywide adjustment for them would be wrong.

State Key Provision Regulatory Model
Georgia Courts Access and Consumer Protection Act; funders must register with Dept. of Banking and Finance; failure to register is a felony (up to 5 years, $10,000 fine); agreements over $25,000 subject to discovery Registration + automatic disclosure
New York Consumer Litigation Funding Act (signed Dec. 22, 2025); 25% fee cap on funder’s share of gross recovery; 10-business-day right to cancel; state registration; annual reporting; funders barred from influencing settlement decisions Registration + fee cap + control prohibition
Montana Automatic disclosure requirement; restricts funders from providing legal advice; prohibits funder decision-making on case strategy and resolution; limits percentage of recovery Automatic disclosure + control prohibition
Indiana Limits funder authority over filing and prosecution of legal claims Control prohibition
Louisiana Limits funder authority over filing and prosecution; prohibits funder control of case decisions Control prohibition
Kansas Requires parties to disclose whether a funder has approval rights for settlement and case resolution Settlement approval disclosure
West Virginia Limits funder authority over filing and prosecution of legal claims Control prohibition
Wisconsin Specifies that funding arrangements are within the scope of discovery if requested Discovery scope

Automatic disclosure states, Montana and Georgia, require funders to disclose without waiting for a discovery request, so the court and defense counsel know from the outset. Georgia adds registration with the Department of Banking and Finance including ownership and criminal history, with failure to register a felony carrying up to five years and a $10,000 fine, and makes agreements above $25,000 discoverable.

Discovery-scope states, Wisconsin and Oklahoma, only place funding arrangements within the scope of discovery if requested. Transparency there depends on defense counsel knowing to ask and a judge allowing it.

Control-prohibition states, Indiana, Louisiana, West Virginia and Montana, restrict what funders may do rather than what they must reveal, limiting authority over filing, prosecution and resolution.

New York's Consumer Litigation Funding Act, signed December 22, 2025, combines all three, and its economic provision is the one that bites. A 25% cap on the funder's share of gross recovery sits against consumer TPLF rates the NAIC has observed between 15% and 124%, alongside a ten-business-day cancellation right, registration and annual reporting.

The cap matters because the retention arithmetic is what changes claim severity. Plaintiffs with funding retain 43% of compensation against 55% without, which means a funded plaintiff needs roughly a 27% higher award to receive the same net payment, and 38% of tort costs go to plaintiff legal expense under funding against 26% without. Capping the funder's share compresses the wedge that requires the larger verdict. A disclosure-only state leaves that wedge intact and changes only who knows about it.

The Reserving Signal Does Not Exist Yet, and the Federal Bill Misses the Tail

The expected direction is clear and the data supporting it is not available, which is an awkward position for a reserve report.

If disclosure narrows the information asymmetry, funded plaintiffs hold out less, and disclosure jurisdictions should show shorter claim duration and lower average severity than non-disclosure ones. But the accident years that have already developed adversely predate every one of these laws. Milliman's $15.8 billion for 2024, and the 2021 through 2024 years generally, describe an undisclosed-funding environment. Accident years 2026 and later in disclosure states should behave differently, and no triangle will show it until those years mature.

That creates a segmentation requirement before it creates a measurable effect. A multi-state casualty book now spans jurisdictions on three different regulatory models, and an aggregate development factor fitted across them blends regimes that are diverging. The practical step is to establish separate development metrics for disclosure and non-disclosure states now, so the baseline exists when the signal arrives.

It also breaks the uniform overlay. Many carriers carry an explicit social inflation load on top of traditional methods. A flat 7% applied countrywide overstates the pressure in states where a fee cap or a control prohibition is compressing TPLF-driven severity, and the excess loss factors are where it shows first, because funders target high-value cases and disclosure that compresses the tail changes increased limits factors before it changes the mean.

The federal bill will not resolve the patchwork. S. 3826, introduced February 11, 2026, reaches class actions, multidistrict litigation and actions involving at least 100 individual cases, which is where funded litigation has the largest absolute dollar footprint. It is not where nuclear verdicts are produced. A single-plaintiff commercial auto case tried to a jury sits outside the federal framework and inside whichever of the three state models applies, which is the same segmentation problem the state laws created, carried forward.

Further Reading

Sources

  1. Swiss Re Institute, “U.S. P&C Insurance Outlook,” April 2025 - swissre.com
  2. Milliman, “U.S. Casualty Insurance 2024 Financial Results,” 2025 - milliman.com
  3. CAS and Triple-I, “New Analysis Quantifies Impact of Legal System Abuse on Liability Insurance,” 2025 - casact.org
  4. U.S. Senate, S. 3826, Litigation Funding Transparency Act of 2026 - congress.gov
  5. Senate Judiciary Committee, “Grassley Proposes Third-Party Litigation Funding Reform,” February 2026 - judiciary.senate.gov
  6. Insurance Business Magazine, “2026 Marks Turning Point in War Against Litigation Financing,” February 2026 - insurancebusinessmag.com
  7. Insurance Journal, “APCIA Backs Federal Bill Requiring Disclosure of Third-Party Litigation Funding,” January 2026 - insurancejournal.com
  8. New York State Legislature, Consumer Litigation Funding Act (S1104A) - nysenate.gov
  9. Insurance Journal, “Florida Committees Approve Litigation Funding Restriction Bills,” January 2026 - insurancejournal.com
  10. CSIS, “Third-Party Litigation Financing: A National Security Problem,” 2023 - csis.org
  11. TransRe, “Claims Update: Third-Party Litigation Funding” - transre.com
  12. NAIC, “Social Inflation” Topic Page - naic.org
  13. Marshall Dennehey, “Georgia Permits Discovery of Litigation Funding,” 2025 - marshalldennehey.com
  14. Bloomberg Law, “Disclosure Tide Is Turning for Third-Party Litigation Funding,” 2025 - bloomberglaw.com
  15. Wilson Elser, “New York’s New Era of Litigation Financing Transparency,” 2025 - wilsonelser.com