PIANJ priority lawsuit-lending transparency bill introduced to state Legislature

In a strong step toward tort reform, New Jersey lawmakers have introduced legislation that would bring much-needed transparency and accountability to the fast-growing world of third-party litigation funding. For insurance producers and policyholders alike, this bill represents a clear move to address escalating legal costs that continue to drive up insurance premiums.

The problem: Hidden players, rising costs

Lawsuit lending, or third-party litigation funding, allows outside investors to bankroll lawsuits in exchange for a share of the winnings. These arrangements often happen behind the scenes, with no obligation for plaintiffs or attorneys to disclose them. The result? Prolonged litigation, inflated settlement demands and mounting costs ripple across the entire insurance system.

That’s why PIANJ is making litigation financing reform a top legislative priority—to expose and regulate practices that undermine fairness and increase costs for New Jersey consumers. S-4374/A-5566 directly support that mission.

What the legislation would do

The bills, sponsored by Sens. John McKeon, D-27, and Joseph Lagana, D-38, and Assemblywoman Eliana Pintor Marin, D-29, would require full disclosure of any third-party litigation funding agreements in civil cases, including alternative dispute resolution proceedings and administrative hearings (excluding workers’ compensation). Here’s a breakdown of the key provisions:

Mandatory disclosure. Parties would need to disclose any litigation funding agreements—plus related correspondence or amendments—at the time of filing or as soon as such agreements are made. These agreements would become permissible subjects in discovery.

Fiduciary duty for funders. Litigation funders would be legally bound to act in the best interests of the plaintiff they support. This fiduciary duty means they would need to avoid conflicts of interest and act with loyalty and care—similar to the obligations attorneys owe to their clients.

Shared legal accountability. If the court imposes sanctions or legal costs against the funded party or their attorney, the funder would share responsibility. This provision would ensure that funders wouldn’t be able to profit from risky or abusive litigation tactics without consequences.

Limits on influence and payouts. Funders would not be able to control or interfere in litigation strategy or settlement decisions or to provide legal advice or choose the plaintiff’s attorney.

In addition, they would be prohibited from taking more than 25% of any monetary recovery. Total deductions from a plaintiff’s award (including attorney fees and funder payments) would be capped at 50%, unless the plaintiff explicitly consents. Funders would not be able to sell, transfer or securitize their interest in the case.

Enforceability and penalties. Any agreement that violates these standards would be unenforceable, and funders engaging in bad-faith conduct would face additional penalties under New Jersey’s Consumer Fraud Act.

Why this matters to insurance producers

Unregulated lawsuit lending inflates claim values and encourages prolonged litigation, directly impacting claim settlements and premium pricing. For insurance producers advocating on behalf of clients and the health of the marketplace, curbing these unchecked practices is essential.

S-4374/A-5566 represents a strategic win in PIANJ’s broader push for tort reform. By introducing basic oversight and aligning financial interests with fairness, this bill would offer a practical way to reduce excessive legal costs, would discourage opportunistic litigation, and ultimately, would help stabilize insurance premiums in New Jersey.

Next steps

If enacted, the law would apply to litigation funding agreements executed on or after its effective date—90 days after enactment. As the bill moves through committee, PIANJ will continue to advocate for its passage and for broader reforms that promote transparency and consumer protection.