Verdicts in excess of $10 million, or even $25 million, are no longer rare occurrences in medical malpractice litigation. Though most of these awards are handed down by empathetic juries concerned for an injured plaintiff, 40 percent of the award or more may go to pay attorney fees and other investors in the lawsuit. Third-party litigation funding (TPLF), whereby outside investors fund legal costs in exchange for a portion of the settlement, is an especially powerful but often unrecognized force amplifying these massive jury awards, known as nuclear verdicts.

The effects of nuclear verdicts reach far beyond the parties named in such suits: Eventually, their ripple effects travel to patients, and increased health care costs restrict access to care.

Investors in lawsuits increase costs—not awards to injured patients

TPLF has evolved into a multibillion-dollar industry, with hedge funds, institutional investors, and private firms eager to finance high-stakes lawsuits. Total annual TPLF investment could exceed $30 billion by 2028.

Yet the increased payouts do not often translate into larger recoveries for injured parties. A significant portion of the compensation—up to 57 percent—goes to lawyers, funders, and other stakeholders. For the plaintiff to receive the same absolute amount, the award or settlement might need to be 27 percent higher than in a case without TPLF, according to estimates by Swiss Re.

Investors in lawsuits raise ethical concerns.

TPLF creates a potential conflict of interest between a lawyer’s fiduciary duty to their client and the interests of third-party funders, who may wish to inflate settlement demands to maximize their returns (in the process prolonging or otherwise reshaping the proceedings). Further, as unseen influencers, funders undermine transparency.

TPLF tactics also exploit the vulnerabilities of patients who have suffered injuries for the profit of investors. Types of TPLF include:

Fast-cash lawsuit lending: Similar to payday lenders, fast-cash lawsuit lenders offer cash to consumers in exchange for repayment from future settlements—often at exorbitant interest rates. This tactic can appeal to plaintiffs who need to cover living expenses as their matters move through the courts. However, a lawsuit loan can keep a plaintiff in a lawsuit—even if it turns out they would like to walk away from litigation. In any event, the lender will most likely consume a substantial proportion of any monies recovered.

Letters of protection: This arrangement defers bill collection for care provided during litigation, which has strong appeal to an injured patient. Unfortunately, a letter-of-protection arrangement usually replaces some form of insured care with uninsured care, which is billed at higher rates, thus inflating damages in ways that can be misleading to juries.

Social inflation increases costs for patients

TPLF artificially enlarges litigation costs. In so doing, it contributes to a phenomenon known as social inflation, in which the cost to settle the average malpractice claim rises faster than general inflation.

As loss costs for insurers rise, so do premium rates for medical practices and systems. Eventually, increased overhead for health care organizations translates to increased prices, and thus reduced access to care, for patients—the very people that jurors often wish to assist with massive jury awards. We’ve come full circle, but what was intended to be a virtuous cycle has become a vicious one.

A call to pursue advocacy and solutions for health care

To counter the growing influence of TPLF, many legislators are pushing for reforms that would increase transparency in the legal process. In 2025, there are 35 active bills in 21 states. For instance, recent bills introduced in Florida would require full disclosure of TPLF agreements, allowing courts and litigants to understand who truly controls the litigation. Furthermore, proposals to regulate fast-cash lawsuit lending aim to protect consumers from predatory practices and excessive fees.

All insurers and industry advocates should actively campaign against legislation that would further legitimize or enable TPLF. This includes advocating for measures to:

• Require TPLF disclosures.
• Apply usury laws to lawsuit lending.
• Ensure that third-party funders share liability for frivolous claims.
• Prohibit lenders from having influence over the litigation.
• Prohibit foreign lenders or other persons of concern.

Despite these efforts, TPLF continues to pose a challenge for companies, insurers, the legal system, and injured patients—who may not understand the choppy waters into which they are diving when they agree to TPLF. By prolonging litigation and inflating settlements and awards, TPLF contributes to the nuclear verdicts that are driving social inflation, altogether reshaping the landscape of risk.

Health care practices and organizations must take proactive steps to safeguard their interests. They can lean on their insurers and broker partners as trusted guides who can recommend safer ways through this unstable environment. For instance, conducting internal audits, scrutinizing claims histories, and using analytic modeling tools to project potential exposures can help health care organizations structure their insurance policies to mitigate the fallout of unfavorable verdicts. In a world where litigation funding is on the rise, the best defense is preparation.

Elizabeth Y. Healy is vice president, government and community relations, The Doctors Company, part of TDC Group.

Founded and led by physicians, The Doctors Company is relentlessly committed to advancing, protecting, and rewarding the practice of good medicine. The Doctors Company helps hospitals and practices of all sizes manage the complexities of today’s healthcare environment—with expert guidance, resources, and coverage—and is the only medical malpractice insurer with an advocacy program covering all 50 states and the federal level. The Doctors Company is part of TDC Group, the nation’s largest physician-owned provider of insurance and risk management solutions. TDC Group serves the full continuum of care.