Third-Party Litigation Funding (TPLF)

What Contractors Need to Know

Litigation finance is no longer a niche concept, it’s a multibillion-dollar industry that significantly increases the litigation exposure contractors face. Third-party litigation funding (TPLF) allows outside investors to finance lawsuits in exchange for a share of any recovery, turning litigation into an asset class where returns are often driven by nuclear verdicts (extraordinary jury awards). The scale of this market is significant: U.S. litigation funding investments are projected to reach $18.9 billion in 2025 and exceed $67 billion annually by 2037.¹ For contractors, this trend means a higher likelihood of prolonged disputes, rising defense costs, and verdicts that may exceed insurance coverage. In this article, we outline what TPLF is, why it matters to contractors, and steps you can take to reduce its impact.

What is TPLF?

At its core, TPLF is straightforward: a third party funds a plaintiff’s or law firm’s litigation costs in exchange for a share of any recovery. If the case fails, the plaintiff owes nothing. By removing financial pressure to settle, TPLF enables plaintiffs and their attorneys to reject reasonable offers and push cases to trial. Although often marketed as a tool to expand access to justice for low-income plaintiffs, its broader impact on businesses and the court system is less positive. TPLF transforms individual lawsuits into financial assets within large litigation portfolios, sometimes worth hundreds of millions of dollars. By spreading risk across multiple cases, fund managers can absorb losses while maintaining liquidity to pursue nuclear verdicts, which disproportionately drive portfolio returns.

How Does TPLF Impact Contractors?

Most contractors can manage routine claims within their insurance limits. But a single nuclear verdict can pierce those limits, exposing company assets directly and threatening the company’s survival. By incentivizing plaintiffs to reject reasonable settlements and push cases to trial, TPLF amplifies the risk of prolonged litigation and excessive jury awards. The result: heightened exposure to catastrophic uninsured losses.

For example, consider this hypothetical:
A construction company vehicle strikes and seriously injures a pedestrian while traveling between job sites. Ordinarily, such a claim might settle for somewhere in the range of $250,000. With TPLF, however, the case goes to trial, creating exposure to a jury verdict that could exceed auto and excess liability limits. Beyond creating the risk of a nuclear verdict, failure to secure a reasonable settlement disrupts company operations, absorbing time, energy, and resources that should be devoted to core business and redirecting them to discovery, deposition and trial preparation, and stress over the litigation’s outcome.

What is the Impact on Civil Litigation and Insurance?

TPLF does more than increase litigation exposure for individual contractors; it tends to undermine the civil justice system itself by amplifying existing weaknesses.

First, TPLF affects professional ethics, particularly around confidentiality. Fund managers owe fiduciary duties to investors, not plaintiffs, which can create indirect pressure on attorneys to prioritize investor returns over client interests. For example, attorneys could reject reasonable settlement offers in pursuit of a nuclear verdict. Likewise, sharing case details with funders may compromise attorney-client privilege, and courts have been inconsistent in ruling whether TPLF agreements and related communications qualify as protected work product.²

Second, widespread use of TPLF raises legitimate national security concerns. Sovereign wealth funds and other foreign-backed entities can exploit TPLF to exacerbate judicial gridlock, manipulate litigation outcomes for political purposes, and potentially access sensitive national-security information or steal intellectual property through discovery.³

Finally, by incentivizing plaintiffs to reject reasonable settlements and pursue jury trials, TPLF adds to the congestion of an already overburdened civil court system.⁴

What are the Efforts to Regulate TPLF?

Despite its rapid growth and adverse effects on both the business environment and the civil justice system, there is still no consistent legal or regulatory framework governing TPLF.

That said, several states have enacted TPLF disclosure laws, including Georgia, Indiana, Kansas, Louisiana, Montana, West Virginia, and Wisconsin. Likewise in Texas, a bill was introduced in the most recent legislative session that would mandate disclosure of TPLF agreements in civil actions.⁵ This shows a growing trend within state legislatures toward greater transparency and oversight over TPLF.

At the federal level, two bills have been introduced to provide a multistate solution. H.R. 1109 would require disclosure of any party receiving payments in federal cases, including litigation funders.⁶ H.R. 2675 targets foreign-backed funding and would restrict participation by foreign states and sovereign wealth funds.⁷

How Should Contractors Respond to TPLF?

Until a uniform, multi-jurisdictional legal framework is in place, contractors should consider these practical steps:

1. Review contracts and strengthen indemnity and defense provisions to address the heightened risk landscape.
2. Plan for extended litigation timelines and anticipate higher settlement demands.
3. Engage claims advocates, insurers, and defense counsel early in the claims process to develop strategies that account for TPLF.
4. Support transparency-focused legislation, such as H.R. 1109 and H.R. 2675, which aim to increase visibility and impose limits on TPLF.

How Can We Help?

Our contracts team reviews indemnity, defense, and other risk-shifting provisions to help clients prepare for emerging risks, including those related to TPLF. We also work as a team with our specialized insurance professionals to evaluate contractor insurance programs to ensure they meet today’s evolving risk landscape.

Discover how EPIC’s Construction & Design Group can help elevate your risk management & insurance programs.

References:

¹ Erica B. Zolner et al., Beneath the Surface: A Deeper Dive Into Third-Party Litigation Funding, Wash. Legal Found. (Aug. 4, 2025), https://www.wlf.org/2025/08/04/publishing/beneath-the-surface-a-deeper-dive-into-third-party-litigation-funding/.
² Mark A. Behrens, Third-Party Litigation Funding: A Call for Disclosure and Other Reforms to Address the StealthyFinancial ProductThat Is Transforming the Civil Justice System, 34 Cornell J.L. & Pub. Pol’y 1, 6–17 (2025), https://community.lawschool.cornell.edu/wp-content/uploads/2025/03/Behens-final.pdf.
³ Id.
⁴ Id.
⁵ Tex. S.B. 3025, 89th Leg., R.S. (2025) (introduced version), available at https://capitol.texas.gov/tlodocs/89R/billtext/html/SB03025I.htm.
⁶ H.R. 1109, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/1109/text.
⁷ H.R. 2675, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/2675/text.