Third-party litigation funding has become an increasingly visible force in the civil justice system. These arrangements allow outside investors to provide cash advances to plaintiffs involved in lawsuits in exchange for a portion of a future settlement or judgment. While often marketed as a financial lifeline for individuals awaiting the outcome of lengthy legal cases, the practice has raised growing concerns among policymakers and the insurance industry.
The Professional Insurance Agents of Connecticut recently expressed support for H.B. 5375, “An Act Concerning the Recommendations of the Insurance and Real Estate Committee Working Groups.” The bill emphasized the need for a clear regulatory framework governing financial arrangements under third-party litigation funding. For PIACT, the absence of oversight leaves consumers vulnerable to excessive fees while also contributing to rising litigation costs.
Consumer protection concerns
Third-party litigation funding is typically structured as a nonrecourse advance, meaning repayment is required only if the plaintiff receives a settlement or court award. Because funders assume the risk of losing their investment, they often charge high fees that compound over time.
PIACT notes that in some cases these costs significantly erode a plaintiff’s recovery once attorneys’ fees and funding charges are deducted. Without standardized disclosures or regulatory safeguards, many consumers may not fully understand the long-term financial implications of these agreements until their cases are resolved.
Supporters of H.B. 5375 argue that clearer rules and transparency requirements could help prevent predatory financial arrangements while ensuring plaintiffs retain meaningful access to their legal recoveries.
Implications for litigation and insurance costs
Beyond individual consumer risks, third-party litigation funding may also affect the broader civil justice system. Investors who fund lawsuits have a financial incentive to maximize settlement amounts, which can sometimes encourage prolonged litigation and higher settlement demands.
These dynamics can increase defense costs and drive up the overall cost of claims. For insurers, higher claim severity and longer litigation timelines can translate into increased expenses that ultimately influence insurance pricing.
Recognizing these concerns, Section 6 of H.B. 5375 directs the Connecticut Insurance Commissioner to study how litigation funding and related settlement practices effect insurance premiums and claim severity.
Balancing access to justice and market stability
Importantly, the legislation does not seek to eliminate litigation funding altogether. Instead, it aims to create a balanced regulatory approach that protects consumers while preserving access to the courts.
By establishing clearer rules and increasing transparency, Connecticut lawmakers hope to address potential abuses in the litigation funding market while maintaining fairness in the civil justice system. Supporters believe that thoughtful regulation can help protect plaintiffs, reduce unnecessary litigation costs and support a more stable insurance marketplace for businesses and consumers across the state.
Joseph Ritchie
Joe Ritchie joined PIA Northeast as government and industry affairs coordinator for the Government & Industry Affairs Department in 2025, where he supports the association’s legislative, regulatory and member-advocacy initiatives across the Northeast. Prior to joining PIA, Joe served as the Advocacy & Policy Coordinator at Riverkeeper, working closely with municipal leaders, environmental organizations, and state agencies to advance clean water protections in the Hudson Valley. Previously, he worked as the Administrator of Government Affairs at Spectrum, where he managed statewide regulatory filings, supported broadband deployment efforts, and coordinated communications with policymakers. Joe also spent time in the New York State Assembly, assisting Assemblymember Kevin Cahill during his tenure as Chair of the Insurance Committee, where he contributed to committee meeting preparations, legislative research and constituent support. In addition to his government affairs work, Joe is the co-founder and Chair of Lights Out Norlite, a community-based environmental justice initiative focused on improving public health and industrial oversight in the Capital Region. He received his bachelor’s degree from Syracuse University and remains an active supporter of Syracuse Football. Outside of work, Joe enjoys cooking Italian meals for his wife, spending time with his family and camping throughout the Adirondacks.
