Litigation Funding Disclosure Reaches Seven States in 2026

From tracking casualty reserve development across the industry since the post-2017 social inflation breakout, the single most persistent data gap in reserving analysis has been the inability to separate funded from unfunded claim populations. The funding indicator is not in claim files. It does not appear in loss runs. It is invisible to every severity trend selection and every LDF selection that casualty actuaries are making right now. Seven states have just created the legal infrastructure to change that, and the baseline period for capturing usable data began January 1, 2026.

Arizona and Georgia led the 2026 wave with the most comprehensive frameworks enacted by any U.S. jurisdiction to date. Colorado, Kansas, Montana, Oklahoma, and Tennessee followed with disclosure requirements spanning the claims litigation spectrum. Together, these seven states cover approximately 22% of U.S. tort claim volume, according to analysis from Loss Reserves, enough to produce statistically credible severity comparisons across commercial auto, general liability, and trucking lines within three to five development years.

The 2026 State Legislative Map

The seven disclosure states share a common core requirement: plaintiffs and their counsel must identify any third-party litigation funding arrangement at or near the outset of civil litigation, enabling defendants and their insurers to know early in the claim life cycle whether a funder's return-on-investment requirement is shaping the plaintiff's settlement calculus. Beyond that core, the statutes diverge in scope, penalties, and regulatory architecture.

State	Mechanism	Disclosure Trigger	Key Provision
Arizona	Supreme Court Rule 8 amendment	Filed with complaint; or within 7 days of funding	Standardized certificate: funder identity, financial stake, approval rights, portfolio vs. single-case scope; SB 1215 bars foreign-adversary-affiliated funders entirely
Georgia	SB 69, Courts Access and Consumer Protection Act	Automatic; agreements of $25,000+ subject to discovery	Funder registration with Dept. of Banking and Finance; criminal history and ownership disclosure; non-compliance is a felony (up to 5 years, $10,000 fine); funders providing $25,000+ become jointly and severally liable for sanctions and costs
Colorado	Statutory disclosure requirement	At commencement of litigation	Identity and financial interest of funder; prohibits funder direction over legal strategy
Kansas	Statutory disclosure requirement	Discovery phase	Limits funder authority over case prosecution and settlement; funding agreement subject to disclosure upon request
Montana	Statutory automatic disclosure	Automatic upon funding	Restricts funder from providing legal advice; caps percentage of recovery funder may receive; prohibits funder control of strategy or resolution
Oklahoma	Statutory transparency requirement	At commencement of civil action	Funder identity and terms of funding agreement; prohibits assignments of legal claims to funders
Tennessee	Statutory disclosure requirement	Upon litigation commencement	Disclosure of funder identity and financial stake; bars funders from directing or controlling legal strategy

Pennsylvania's Supreme Court received public comments on a proposed disclosure rule through April 22, 2026, and a decision is pending. If adopted, Pennsylvania would add a jurisdiction with among the highest nuclear verdict frequency in the country to the disclosure universe, significantly expanding the actuarially credible dataset.

Georgia and Arizona: The Disclosure Leaders

Georgia's SB 69 is the most operationally consequential TPLF statute enacted by any state because it creates a registration infrastructure, not just a disclosure obligation. Every litigation funder operating in Georgia must register with the Department of Banking and Finance, disclosing ownership structure and criminal history. Funders providing $25,000 or more become jointly and severally liable for any sanctions or costs awarded in the case, a provision that reshapes the risk calculus for funders considering participation in weaker cases. Non-compliance carries felony penalties: up to five years imprisonment and a $10,000 fine per violation.

The joint-and-several liability provision matters most for insurers. A funder who shares exposure for sanctions has an incentive to avoid cases likely to trigger sanctions, which selects toward cases with stronger merits. That selection effect, if it materializes in Georgia claims data over the 2026-2027 baseline period, would show up as a moderation in the severity premium for funded versus unfunded claims in that state relative to states without similar provisions.

Arizona's approach is procedural rather than regulatory. The Arizona Supreme Court's amendment to Rule 8 of the Rules of Civil Procedure requires a standardized disclosure certificate filed with the complaint, covering funder identity, the financial stake, whether the funder holds approval rights over settlement decisions, and whether the funding covers a single case or a portfolio of claims. The portfolio question matters for insurance carriers: a funder with cross-case exposure across a portfolio of related commercial claims against the same insured has different incentives than a single-case funder, and those incentive differences manifest in different litigation patterns and severity trajectories.

Arizona also enacted SB 1215, which bars any litigation funded directly or indirectly by a foreign entity of concern, defined by reference to federal national security designations. This foreign-adversary prohibition tracks similar provisions in Georgia's SB 69 and reflects congressional concerns about sovereign wealth funds and state-affiliated investment vehicles using TPLF to influence U.S. litigation outcomes. For actuaries, the national security framing is secondary; what matters is that Arizona has created a mandatory field that must appear in every funded case file from January 1, 2026 forward.

The Severity Split: Why Funded Claims Cost More

The structural reason funded claims produce higher severity than unfunded ones is arithmetic, not legal strategy. A funder charging 20% to 40% annual returns on capital deployed requires that the plaintiff's net recovery after funder repayment still justify the lawsuit. That floor creates a minimum acceptable settlement below which a funder-backed plaintiff cannot economically agree to resolve. A claim that would settle for $75,000 without funding may need to reach $180,000 or more for the plaintiff to net a comparable amount after repaying principal and interest to the funder.

According to Conning's director of research Alan Dobbins, TPLF is "the jet fuel funding megaverdicts," a characterization that has held up in industry analysis across trucking, commercial auto, and general liability lines. Swiss Re's research quantified nuclear verdicts totaling $31.3 billion across 135 cases in 2024, a 52% increase over 2023. Not all of those verdicts were funder-backed, but the structural overlap between high-value funded cases and the nuclear verdict population is significant enough that insurers cannot properly apportion social inflation severity trends without separating the funded exposure.

The challenge for reserving actuaries is that this severity premium has been embedded in aggregate loss development data for years without a clean way to isolate it. Chain ladder methods, Bornhuetter-Ferguson selections, and frequency-severity approaches all absorb funded-claim severity into the overall trend line. The result is that severity trend selections in commercial auto and general liability likely contain an unmeasured TPLF component that has been growing as the funding market expanded from roughly $2 billion in deployed capital a decade ago to an estimated $18 to $25 billion globally today.

Seven states requiring disclosure creates the first real opportunity to segment. Carriers writing business in Arizona, Georgia, Colorado, Kansas, Montana, Oklahoma, and Tennessee can now begin capturing a TPLF indicator in their claims management systems, flagging funded cases as soon as opposing counsel files the required disclosure certificate. Once that indicator exists in the data, the analytics become straightforward: compare severity development factors for funded versus unfunded claims, by line and by accident year, with the January 2026 effective date as the clean break point.

Reserving Implications: IBNR and the Segmentation Problem

The practical reserving problem is a multi-state book. A national commercial auto carrier writing in all seven disclosure states faces two claim populations developing simultaneously: cases in disclosure jurisdictions where the TPLF indicator is captured, and cases in the remaining 43 states where it is not. Building separate severity development factors for funded versus unfunded claims requires enough volume in each cell to produce credible LDF selections, which argues for pooling across all seven states initially rather than state-by-state analysis.

Self-insured employers and large deductible programs face a more acute segmentation challenge. A multi-state manufacturer with operations in both disclosure and non-disclosure jurisdictions cannot cleanly segment its funded claim exposure even with perfect data capture in the disclosure states, because the funding indicator is simply absent for the non-disclosure population. For IBNR purposes, the practical approach is to treat the disclosure-state funded population as a data source for calibrating a severity uplift factor, then apply a penetration rate assumption (the estimated percentage of claims that are funder-backed across the full book) to produce an adjusted reserve estimate.

ASOP No. 36, which governs statements of actuarial opinion on property/casualty reserves, requires appointed actuaries to document known risk factors that may affect reserve adequacy even when those factors cannot be precisely quantified. TPLF penetration and the resulting severity premium now qualify as exactly that type of known factor. In the 43 non-disclosure states, the appointed actuary cannot observe funding status directly, but the existence of a measurable severity uplift in the seven disclosure states creates an obligation to consider whether similar dynamics are operating in the non-disclosure book.

The timing of reserve recognition compounds the challenge. TPLF-backed cases tend to have longer development tails because funders can sustain prolonged litigation that an unfunded plaintiff could not. A commercial general liability claim funded by a sophisticated institutional funder may remain open two to three years longer than a comparable unfunded claim, producing claims payments that emerge in accident years 3 through 7 rather than years 1 through 3. Standard LDF selections calibrated on historical data that did not distinguish funded from unfunded cases will understate the tail for books with growing TPLF penetration.

What Carriers Should Do Before the Baseline Window Closes

The 12-to-18-month period from January 2026 through mid-2027 is the foundational data-building window. Claims in Arizona and Georgia that open after January 1, 2026, will carry funding disclosures from the first filing, creating a clean accident-year cohort with known funding status. That cohort will reach early development maturities (12 and 24 months) in 2027 and 2028, producing the first actuarially meaningful funded-versus-unfunded severity comparisons from any U.S. jurisdiction operating under mandatory disclosure.

The practical steps for casualty actuaries and claims management teams are concrete. First, add a TPLF indicator field in the claims management system for all claims in the seven disclosure states, populated automatically when defense counsel receives or files the required certificate. Second, code the field at the policy level as well as the claim level, because portfolio-funded cases (where a single funder backs multiple claims against the same insured) may not show up as individually funded on every claim file. Third, establish a monitoring report that tracks the funded-claim share by line and by state quarterly, so that penetration trends are observable in real time rather than discovered retrospectively at reserve reviews.

For pricing actuaries, the severity segmentation data will be most useful for commercial auto and trucking, the two lines where TPLF penetration is highest and where the severity premium for funded cases is most visible in verdict data. Georgia ranks among the highest-severity jurisdictions nationally for trucking and commercial auto liability verdicts, which is precisely why the mandatory disclosure infrastructure there is so valuable: it pairs a high-funder-activity jurisdiction with a high-severity jurisdiction, maximizing the signal-to-noise ratio in the resulting dataset.

Carriers that build the funded-claim indicator into their systems now will be positioned to run the severity comparison analysis in 2027, when the first 18-month cohort of disclosed claims reaches meaningful development. Carriers that do not capture the indicator during the baseline window will have no way to reconstruct it retroactively, because disclosure certificates are litigation filings rather than insurance records and are not systematically transferred into loss runs by current industry practices.

What This Means for Pricing and Reserving Going Forward

The seven-state disclosure regime does not eliminate TPLF or its severity impact. It creates transparency about which claims carry funder involvement, a transparency that did not exist before January 2026. Whether that transparency eventually produces a directly measurable severity split factor depends on whether the industry captures the data systematically during the observation window now open.

For pricing, the medium-term implication is the possibility of a disclosed-jurisdiction severity trend that differs from the undisclosed-jurisdiction trend. If funded claims are confirmed at 20% to 40% higher severity than unfunded comparables (the range suggested by funder ROI arithmetic), and if TPLF penetration in commercial auto runs at 5% to 15% of high-value claims, the aggregate severity effect on trend selections is measurable but not catastrophic. The risk is not that TPLF destroys rate adequacy; it is that TPLF creates a hidden trend acceleration that standard experience-based methods cannot capture until several development years of funded-claim data exist.

For reserving, the 2026 and 2027 accident years in the seven disclosure states will be the first reserve vintages where actuaries can begin to disentangle funded from unfunded severity development. That disentanglement is not just analytically useful; it is a risk management obligation under the current environment of $15.8 billion in annual casualty adverse prior-year development and the scrutiny that number has attracted from regulators, rating agencies, and boards.