TPLF, aka Third-Party Litigation Funding, is an often lucrative investment for private equity, hedge funds, elite university endowment funds, certain trusts, and other deep-pocketed investors who can afford to take on the risk of funding lawsuits deemed likely to offer large awards to plaintiffs.
Understanding TPLF
Third-Party Litigation Funding (TPLF) is one of the fastest-growing alternative asset investment classes, with recent annual returns surpassing 20%. Investors looking to diversify their portfolios, will front the costs associated with lawsuits, class action and individual suits, receiving in return a percentage of the awards given in a winning case. It is sometimes referred to as legal funding, third-party litigation finance, or alternative litigation financing (ALF).
Funding from these third parties is used to cover not just legal fees but also personal or medical expenses (in personal litigation), court-related fees, expert witness or jury consultant fees, and even the costs associated with exploring riskier legal strategies. Investors focus on cases that are more likely to win big settlements.
Proponents of TPLF argue that it provides access to justice. Opponents argue that it does the opposite, often resulting in unfair outcomes.
Taking this argument further, opponents believe TPLF is a multi-billion dollar global industry that threatens the professional independence of lawyers and disrupts the loyalty that counsel owes to their clients, according to the U.S. Chamber of Commerce. A recent report states, "It operates largely in secret and is designed to maximize profits for its investors at the expense of the legal system, defendants, plaintiffs, and consumers."
In other words, investors, which include many foreign governments, secretly invest in and control lawsuits within the U.S. in exchange for a percentage of the settlements or awards, driving up settlement costs, prolonging litigation, and costing insurance companies and clients more which they must pass on to consumers.
TPLF Myths
Investors in TPLF want consumers to believe that they are "passive," and do not control or influence litigation efforts. In a research paper from the U.S. Chamber of Commerce's Institute for Legal Reform titled Grim Realities: Debunking Myths in Third-Party Litigation Funding, researchers have debunked this and several other harmful claims surrounding the TPLF industry.
Myth: Funders do not exert control over litigation
Sysco Corporation, one of the largest food distributors in the U.S., partnered with litigation funder Burford Capital in a suit it was pursuing against a group of meat producers. During the process, Sysco wanted to settle one of its lawsuits but argued in court that Burford prevented it from accepting reasonable settlements, trapping them in a lawsuit. Plaintiffs' attorneys, Sysco said, did not want to settle because they were beholden to TPLF contracts.
In October of 2024, over 100 major companies, including Amazon, Meta, and General Motors called on the U.S. judiciary to adopt a nationwide rule requiring mandatory disclosure of TPLF in federal lawsuits. Their position: undisclosed TPLF arrangements drive up litigation costs and create an unfair playing field for businesses involved in federal court cases.
"The settlement process often unravels ... because financial backers
significantly alter the dynamics of litigation," the statement reads.
Myth: TPLF is a Necessarily Transparent Effort Designed to Provide Justice
TPLF operates in the shadows. There is no federal law governing transparency, and very few localities require it. Financiers, who also spend their dollars financing political campaigns, prefer to stay anonymous to avert regulatory scrutiny.
Former Virginia Congressman Bob Goodlatte states, "TPLF upsets the job of a judge to fairly and efficiently administer justice because judges can't identify potential conflict of interest."
"The terms of insurance contracts involved in a case are confidentially disclosed, so the same should go for TPLF agreements," Goodlatte says. He believes court rules, state law, or federal law need to be enacted to prevent turning our courts into "casinos."
Myth: TPLF is not a National Security Risk
In 2023, a Chinese TPLF called PurpleVine IP financed one of several intellectual property lawsuits against Samsung and a subsidiary in U.S. Courts. In one case filed in the U.S. District Court in Delaware, the Chief Judge had a standing order that required full disclosure of all litigation funding in his courtroom. As a result, it was determined that Purplevine had likely received and relied upon privileged, highly sensitive, and confidential information with its involvement in the case.
Myth: TPLF does not impact plaintiffs
Given the way TPLFs work, it's hard to believe they would make this claim. More often than not, significant amounts of money are given to the funders, leaving plaintiffs with much lower recoveries, especially after attorney's fees are also taken out.
PBS aired a story of a TPLF "failure" in early 2024. A group of British postmasters had been falsely charged with theft and accounting fraud that sent several of the plaintiffs to prison and left many financially ruined. To add salt to the wounds, when found innocent after a TPLF funded lawsuit, the funders and lawyers got 80% of the settlement, leaving only 20% for the postmasters.
How This is Impacting Your Insurance Rates
While home and auto insurance rates have been increasing for years, many think it has been due solely to inflation, mounting losses from natural disasters, and rising repair and replacements costs.
However, legal system abuse, of which TPLF is considered a key part, has become the top target of many governments, organizations, corporations, and insurance providers in keeping insurance costs under control.
TPLF has evolved into a $18 billion industry worldwide, with 52% of that money being spent in the U.S. This means it is a key contributor to the social inflation hiking up jury awards and settlements. As insurance companies pay for outsized awards, they balance the loss by narrowing coverage terms, expanding deductibles, and raising premiums - costs ultimately born by consumers and insureds.
"Legal system abuse is the major cost driver that's having a huge negative impact on insurance availability and affordability," says David Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA).
The U.S. is a globally recognized litigious society, and opponents argue that TPLF fuels frivolous lawsuits. The influx of outside capital incentivizes the pursuit of questionable claims, which clog courts and drive up costs for the plaintiffs, corporations, and local governments. Litigation funding also contributes to the rise of excessive jury awards, which distort the civil justice system and get passed on to insurance policyholders.
As an example, in Louisiana, a scheme involving litigation funders and a law firm helped fuel a surge in hurricane-related insurance claims. According to the American Tort Reform Association (ATRA), this sort of legal abuse costs every one of its citizens more than $1,100 annually. The Insurance Research Council (IRC) also reported that the state's litigation environment strongly influences its standing as the least affordable U.S. state for both auto and homeowners insurance.
What's Being Done
Last year was a banner year for legislation covering TPLF transparency. Many states, including West Virginia, passed laws to make it illegal for funders to remain anonymous.
On February 7th of this year, three members of the House of Representatives introduced HR 1109 – The Litigation Transparency Act of 2025, which will require the disclosure of parties receiving payment in civil lawsuits in federal courts.
Virginia does not have any specific laws addressing TPLF funding to date.
Sources: U.S. Chamber of Commerce, iii.org, LegalNewsLine, Insurance Journal, ATRA Tort Talk, CRC Group