NORTH CAROLINA
First State to Close the Door on Third-Party Litigation Funding
North Carolina has become the first state to broadly prohibit third-party litigation funding in civil cases. New legislation makes it unlawful to provide money for litigation expenses in exchange for a repayment right tied to the outcome of a lawsuit. The law sweeps broadly, covering civil actions, arbitrations, mediations, and administrative proceedings, while carving out exceptions for contingency-fee arrangements, insurers’ defense and indemnity obligations, certain nonprofit activities, and non-contingent loans.
The statute voids prohibited funding agreements and authorizes enforcement by both the Attorney General and private litigants. Violators may face civil penalties of up to $50,000 per violation, as well as damages, attorneys’ fees, and potential treble-damages exposure. The measure reflects growing concerns that outside investment can influence litigation strategy and settlement dynamics, and it may serve as a model for other states. Statute.
NEW JERSEY
Not Ready to Ban Litigation Funding, But Ready to Shine a Light on It
While North Carolina chose prohibition, New Jersey appears poised to pursue regulation through transparency. The Assembly recently passed legislation requiring parties to disclose third-party litigation funding agreements at the outset of a case and making those arrangements expressly discoverable. The bill would apply broadly to civil actions, arbitrations, and administrative proceedings, and would require disclosure of funding agreements and related documents without waiting for a discovery request.
The proposal goes beyond disclosure. Litigation funders would owe fiduciary duties to funded parties, could be held jointly liable for sanctions assessed in the litigation, and would be prohibited from controlling litigation strategy, settlement decisions, or attorney selection. The bill also caps a funder’s recovery at 25% of the litigation proceeds and renders non-compliant funding agreements unenforceable. After passing the Assembly by a bipartisan 70-4-2 vote, the measure now awaits consideration in the Senate Budget and Appropriations Committee. Bill Text.
NEW YORK
Prior Workers’ Comp Rulings No Longer a Shortcut to Dismissal
A New York appellate court held that defendants could not use a Workers' Compensation Board determination to bar a personal injury action arising from the same construction-site accident. After the Board disallowed part of the Workers’ Compensation claim, the premises owner and general contractor sought to assert collateral estoppel based on that ruling.
The court found the defense legally unavailable under the Justice for Injured Workers Act (JIWA), which provides that Workers’ Compensation Board findings generally have no preclusive effect in other proceedings, except on the issue of an employer-employee relationship. Emphasizing the statute’s remedial purpose, immediate effective date, and legislative intent to overturn prior case law, the court held JIWA applies retroactively. The decision removes a potentially powerful defense in parallel civil litigation and extends JIWA’s reach beyond claims arising after its enactment. Decision.
INDIANA
Not Every Toxic Substance Is a Pollutant
An Indiana appellate court held that claims arising from a mislabeled alcohol product containing lethal levels of methanol were covered under a CGL policy’s products-completed operations coverage, not a separate pollution liability coverage part. After multiple injury and death claims exhausted the pollution coverage limits, the insurer argued that methanol qualified as a “pollutant” and that all related claims arose from the same covered “pollution condition.” The court disagreed, relying on Indiana precedent requiring insurers to specifically identify substances they intend to treat as pollutants.
The court reasoned that the claims stemmed from the manufacture and sale of a defective product, not from environmental contamination or the release of pollutants into the environment. Because methanol was not specifically identified as a pollutant, the insurer could not use the policy’s pollution provisions to supplant CGL coverage. The case also highlights a recurring coverage question: when does a claim involving a harmful substance become a pollution claim rather than a traditional products-liability loss? We will take a closer look at that issue in an upcoming Casualty Coverage Chronicle post. Decision.
CALIFORNIA
Coverage Forfeited Where Policyholder Settled First and Notified Later
A California appellate court held that a policyholder’s assignee could not recover under CGL policies where the insurer did not receive notice of the underlying construction-defect action until after the insured had settled the case. The assignee argued that a tender letter sent years earlier to another insurer, through a common intermediary, effectively notified the CGL insurer. The court disagreed, finding that the letter sought coverage only from the identified carriers and gave no indication that coverage was being requested from the insurer at issue.
The court also enforced the policy’s voluntary-payments provision, noting that the insured settled and assumed obligations without the insurer’s consent. Because notice was first provided after the settlements were completed, the insurer was not required to demonstrate prejudice. The decision underscores a recurring coverage principle: an insurer deprived of any opportunity to participate in the defense or settlement may have a complete defense based on notice and consent provisions. Decision.