Litigation Funding: A Wolf in Sheep’s Clothing?
This article was originally published in the January 2026 issue of Jetstream.
Imagine this scene: “And we, the jury, find in favour of the plaintiff in the amount of USD200 million.” Joy on the faces of the suits at the plaintiff’s bench. Utter disbelief amongst the defendants and their lawyers.
But who is missing? Where is the plaintiff? They were present through the trial, but on this most important day, they are nowhere to be seen. What happened that meant the plaintiff did not attend the resolution of her own case? Hold that thought…
An insurer writing about litigation funding may have as obvious a conclusion as the outcome of a committee meeting of turkeys debating the merits of Thanksgiving or Christmas. Self-interest in reducing the prevalence of litigation funding should therefore be taken as read. But we do hope to highlight some of the wider potential societal harms.
An Introduction to Litigation Funding
However, it is increasingly viewed with scepticism due to its potential to distort the litigation process. Detractors argue that it introduces commercial interests into the courtroom, incentivising funders to prioritise profit over fairness and increases the potential for abusive claims.
Profit Over Principle?
Some might say that the introduction of a profit motive into a domain that should be governed by principles of justice and equity is nothing new. Plaintiff lawyers (most notably in the U.S.) have worked under a contingency model (in which they take a share of the proceeds and are thus motivated to maximise those proceeds) for as long as anyone can remember.
However, whilst there has always been this potential for financial interest to distort the litigation process, the ethics under which lawyers are required to operate have helped to provide some checks and balances.
Contrast this with a shadowy and anonymous litigation funder whose involvement in the claim may not even be revealed to the judge or the jury, and we find ourselves in a different place.
When accidents occur for which we are responsible, defendants and their insurers are—contrary to how the movies would have us portrayed—usually highly motivated to put right the wrong caused. In litigation, that usually means money, and sometimes putting a financial number on a harm caused is no easy task. But it is made no easier by the involvement of a litigation funder, who was not harmed at all but simply sees the harm inflicted upon someone else as a business opportunity.
It also removes from the equation non-monetary remedies. A simple “sorry” might have huge meaning to a wronged plaintiff, as much as a change in process to ensure the same thing cannot happen again. But such remedies are valueless to a litigation funder. Likewise, in the commercial context, an opportunity to do new business as part of a reparation for something that has gone wrong is the type of arrangement that helps business and feeds the economy. But there is nothing in such a deal to a litigation funder. This brings us conflicts of interest and the problem of loss of autonomy.
Loss of Autonomy
Once a funder is involved, the claimant or plaintiff may lose control over key decisions in the litigation, including whether to settle and on what terms.
Funders typically require contractual rights to influence or even veto settlement offers, particularly if the proposed settlement would not yield a sufficient return on their investment.
What is a good resolution for the plaintiff may be bad for the funder. This dynamic can place claimants in a difficult position—caught between their own interests and the commercial imperatives of their funder.
Returning to the imaginary courtroom scene introduced above and the question posed about her absence from the reading of the verdict: The plaintiff “sold” her entire cause of action to a litigation funder for a guaranteed payout of USD20 million. Therefore, she had no interest in the verdict amount and indeed might prefer not to see just how much she gave away.
Some may view such an arrangement as her own prerogative. But is there something not quite right about this purported quest for justice, decided by a jury giving up their time as a public duty, actually being about whether the litigation funder’s gamble paid off? If USD20 million was the sum the plaintiff desired, then isn’t that the sum the defendant should have paid, rather than USD200 million to someone who suffered no harm at all?
Regulatory Gaps and Transparency Issues
Despite its growing prevalence, litigation funding remains lightly regulated in many jurisdictions. There is often little transparency around the terms of funding agreements, the identity of funders or the extent of their control over proceedings. This opacity makes it difficult for courts, opposing parties and even the claimants themselves to assess the true dynamics at play.
Calls for greater regulation—including mandatory disclosure of funding arrangements—have grown louder, and it is encouraging to note that certain jurisdictions have started to recognise the risks of allowing the model to go unregulated.
The Rise of the Nuclear Verdict
In recent years, the litigation landscape—and the aviation litigation landscape is certainly no exception—has been rocked by a surge in outsized jury awards. These are commonly referred to as nuclear verdicts (awards exceeding USD10 million) or thermonuclear verdicts (those surpassing USD100 million). Once rare, these verdicts are now increasingly frequent.
There are many reasons cited for the increase, with anti-corporate sentiment often featuring as one of the explanations for the phenomenon. Another, however, is undoubtedly the increasing involvement of litigation funding.
Funders use data analytics to select high-value claims and target jurisdictions that are more likely to deliver high-value verdicts. Entire states, or districts within states, can become a feeding frenzy for funders.
As litigation costs continue to spiral, insurers bear some of the load. But, inevitably, at least some of those costs are passed on to buyers of insurance. These extra costs can work their way through the supply chain to the consumers, which in turn feeds the anti-corporate sentiment and helps talk the jury into awarding the nuclear verdicts. And, so, the doom loop continues.
Tort Reform
It is fair to say that tort reform has historically been a low priority for politicians of all colours. In perhaps the clearest sign of an acceptance of a problem, several U.S. states have actively pursued tort reform measures specifically targeting litigation funding.
Georgia enacted sweeping tort reform legislation in April 2025, with a strong focus on curbing third-party litigation financing and preventing funders from influencing litigation strategy, legal representation or expert witness selection and making the existence of funding arrangements admissible in court. Louisiana followed Georgia with its own expansive tort reform package, which includes measures to limit recovery for plaintiffs based on fault.
Texas, South Carolina and Alabama made litigation funding disclosure and regulation a legislative priority in 2025. Texas is focusing on transparency and curtailing attorney advertising and phantom damages. South Carolina is targeting reforms to joint and several liability laws, while Alabama is pushing for legislation on litigation funding, advertising and damage inflation.
Arizona, Colorado, Kansas, Montana and Oklahoma passed laws in 2025 to regulate third-party litigation funding, aiming to increase transparency and prevent foreign influence in U.S. courtrooms.
Meanwhile, in what has been claimed by many as a “missed opportunity,” a provision in what became known as President Trump’s “Big Beautiful Bill” was struck down on procedural grounds.
Had the provision been passed, a 40.8% tax would have been imposed on returns derived from litigation funding agreements, making such arrangements a much less attractive proposition.
Reform will take place slowly, and funders are likely to lobby hard in states where the opportunities are most lucrative. It may take many years for it to fade away completely, if that result is even achievable.
A Plea
Our clients operate sophisticated businesses, and necessarily, some of you will need to consider pursuing remedies in litigation at some point. Litigation funding can seem like an obvious route by which to defray the often very high legal costs.
However, we would urge you to consider the short- and medium-term implications of supporting this eco-system. It is almost certainly not something you would wish to find yourself on the other side of.
Proverbs about those who “live by the sword” and chickens “coming home to roost” highlight the potential for today’s strategic advantage to become tomorrow’s costly liability.