How Can Somebody Else’s Lawsuit Cost Me Money?
You didn’t file the lawsuit. You don’t know the people involved. You may live hundreds of miles from where the case was heard. So how could somebody else’s lawsuit possibly cost you money?
The answer becomes clearer when you follow the money.
A recent economic analysis prepared by The Perryman Group for Citizens Against Lawsuit Abuse estimates that third-party litigation funding, or TPLF, reduces consumer purchasing power by $192.79 per person per year. For the average American household, the estimated annual impact is about $607, through a combination of higher prices and lost earnings. The analysis also estimates more than $31 billion in added inflationary pressure across the U.S. economy.
That doesn’t mean $607 has been added directly to your insurance bill. It means costs created in one part of the economy can travel much farther than most of us realize.
How Does a Lawsuit Become My Expense?
Think about what happens whenever the cost of doing business increases. A manufacturer that pays more for materials has to account for that expense. A contractor facing higher labor costs does the same. An insurance company with higher claim costs must factor those expenses into its estimate of how much it will need to pay future claims.
Legal costs are no different. When lawsuits become more expensive to defend, settlements become larger, claims become harder to predict, and those costs aren't just absorbed. Businesses eventually incorporate some of them into the prices of goods and services, while insurers account for changing claim costs when pricing coverage.
We readily see many of the forces that increase insurance costs. Inflation raises the price of building materials and labor; rising home values and reconstruction costs make damaged homes more expensive to repair; and severe storms may create thousands of claims at once.
Legal-system costs are much less visible, but they become part of the equation too.
Where Does Litigation Funding Come In?
Third-party litigation funding introduces another financial participant into a lawsuit. An outside party funds the case and expects to receive a portion of a settlement or court award if it succeeds.
Third-party litigation funding (TPLF) can take on many forms: an injured person receives an advance to help cover living expenses while a case is being resolved; funds finance an individual lawsuit, or even a portfolio of lawsuits; and litigation funders provide financing directly to law firms to help cover the costs of pursuing cases before any settlement or award is received.
There is a legitimate argument in favor of TPLF. A person or small business with a valid claim may not have the financial resources to pursue a lengthy case against a much larger opponent. Outside financing can provide access to the legal system that is otherwise be unaffordable.
The growing debate, however, is not simply about whether litigation funding should exist. It is increasingly about how transparent it should be and what safeguards should apply.
Want to learn more about third-party litigation funding? Read our earlier article explaining how it works and why it matters to policyholders. → |
When a Lawsuit Becomes an Investment
In a typical lawsuit, the major financial interests are fairly easy to understand. A plaintiff is seeking compensation, the defendant is trying to limit its liability, attorneys have fees tied to the outcome, and an insurance company may be responsible for some or all of a covered claim.
Third-party litigation funding adds another financial interest that is much less visible: an outside investor that has put money into the case and expects a return if it succeeds. This raises questions about who is financing the litigation, how much money is involved, whether a funder can influence settlement decisions, and how much of an eventual award remains with the plaintiff.
These questions are especially important when financing costs accumulate over time. In an investigation cited by the Insurance Information Institute, interest and fees on consumer lawsuit advances have averaged between 35% and 45% annually. Because these charges continue to accumulate until a case is resolved, a relatively small advance can grow substantially over several years. In one alarming example, a plaintiff who received $76,500 in advances ultimately owed at least $1.4 million to the funder by the time her case settled.
Commercial litigation funding works differently from a consumer cash advance. A funder may provide money to cover the cost of pursuing a lawsuit in exchange for a share of the recovery, a multiple of the amount invested, or another negotiated return. In some agreements, the return increases the longer the case takes to resolve, increasing the amount paid from the settlement to the funder before the plaintiff or business sees any benefit from a settlement or award.
Examples like this help explain why lawmakers in a growing number of states are taking a closer look at how these arrangements work.
States Are Starting to Put Up Guardrails
Twenty states have enacted laws addressing third-party litigation funding, with 13 adopting those laws in the past two years alone.
The states have addressed the legislation from several different angles. Some focus on disclosure and transparency, while others address consumer protections, the amount of control a funder can exercise, or the source of the money being invested. North Carolina has taken a particularly strong approach, while states including Ohio, Colorado, Mississippi, Oklahoma, Tennessee and Utah have recently adopted measures addressing litigation funding.
Much of the current debate isn’t about banning litigation finance altogether. It is about deciding whether an outside investor with a financial stake in a lawsuit must disclose that interest — and what limits should apply.
What About Virginia?
Virginia has not joined the growing list of states with a comprehensive law that specifically regulates third-party litigation funding or requires broad disclosure of these arrangements.
The Commonwealth does have laws that touch on portions of the issue. Virginia law allows an injured person to pledge part of a future settlement or court award in exchange for money or other value received now. This provision was amended in 2025, but it is not the same as a modern TPLF transparency law requiring disclosure of outside litigation investors.
A review of Virginia’s 2026 legislative activity does not reveal a broad TPLF transparency measure comparable to laws recently adopted elsewhere. Virginia lawmakers considered other changes involving complex civil litigation during the session, but not a comprehensive framework specifically addressing third-party litigation funding.
There has been some activity involving Virginia lawmakers at the federal level. In June 2026, U.S. Rep. Ben Cline of Virginia offered an amendment that would prohibit certain litigation funding by foreign states and sovereign wealth funds and establish additional transparency requirements for foreign third-party funding. That proposal concerned federal law, however, not Virginia’s state court system.
So why hasn’t Virginia acted?
There doesn’t appear to be a single official answer. There is no evidence that Virginia policymakers have formally concluded that litigation-funding reform is unnecessary, nor does there appear to have been a proposal in the General Assembly that was debated and rejected. For now, the more accurate conclusion is simply that the issue has not yet developed into a significant statewide legislative initiative.
As more states adopt rules, however, Virginia policymakers will face many of the same questions:
Should an outside financial interest in a lawsuit have to be disclosed?
Should courts and opposing parties know who is investing in litigation?
Should there be special rules involving foreign sources of funding?
What protections should apply to consumers who enter these arrangements?
Why Should a Virginia Homeowner Care?
Because you don’t have to be involved in a lawsuit to live in an economy affected by litigation costs.
Insurance is one example. An insurer doesn’t determine premiums based solely on what happened to one house or one policyholder. It has to anticipate the cost of claims across a much larger pool of risks. This includes the cost of repairing and rebuilding homes, weather-related losses, inflation, liability claims and the legal environment in which those claims are resolved.
Litigation funding is certainly not responsible for all rising legal costs, just as any one storm or any one increase in construction costs doesn't explain the entire price of homeowners insurance. But the amount of money flowing into litigation — and the potential effect on the cost and duration of cases — has become part of a broader national conversation about increasingly expensive and unpredictable liability claims.
Businesses face many of the same pressures. When legal expenses, settlements and insurance costs rise, businesses must absorb those expenses somewhere. Over time, those costs find their way into the prices consumers pay.
Summary: Litigation Costs Reach Far Beyond the Courtroom
So how can somebody else’s lawsuit cost you money? Because rising litigation expenses increase the broader cost of claims, insurance, and doing business — costs that ultimately reach consumers.
Storms, inflation, and the rising cost of repairing and rebuilding homes are among the most visible pressures on insurance rates. The legal environment is less visible, but it also affects what insurers pay to resolve claims and, ultimately, what consumers pay for coverage.
Third-party litigation funding is one part of that larger picture. And as more states require greater transparency around who is investing in lawsuits and what financial interests they hold, Virginia may eventually have to decide whether it is time to take a closer look.
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