Changes to taxes on litigation investors were left out of the final version of the large One Big Beautiful Bill, but the spotlight on third-party litigation funding (TPLF) remains bright among some lawmakers in Washington.
On July 22, Representative Darrell Issa, a Republican from California and chairman of the House Subcommittee on Courts, Intellectual Property, Artificial Intelligence, and the Internet, held a hearing titled “Foreign Abuse of U.S. Courts.” During the session, Issa highlighted concerns about how foreign entities, especially the Chinese Communist Party, are exploiting the U.S. legal system. He described this as a form of “legal warfare,” using American courts and intellectual property laws to gain an edge.
Issa has been active on the issue. Back in February, he introduced the Litigation Transparency Act of 2025 (HR 1109), which would require the disclosure of third-party funding in federal civil lawsuits. The idea is to bring more openness to a practice that is often secretive.
The American Property Casualty Insurance Association (APCIA), a group that sees reforming TPLF as very important, shared a statement with Issa’s subcommittee. San Whitfield, APCIA’s senior vice president for federal government relations, warned that TPLF poses serious risks to both the legal system and the economy. He said the practice pushes up litigation costs, especially non-economic damages, which in turn raises prices for consumers and businesses, including insurance premiums.
New research from the Insurance Information Institute and Munich Re US puts numbers to this impact. Their consumer guide says abuse of the legal system adds about $6,664 to the annual cost of goods and services for each American family. Small businesses face an estimated $160 billion in tort-related costs every year.
One of the more troubling points about TPLF is that hedge funds and other investors—including foreign governments and sovereign wealth funds—can secretly pump money into lawsuits, hoping to make money off any settlements. This secrecy and foreign involvement have drawn additional legislative attention. Rep. Ben Cline, Republican from Virginia, introduced the Protecting Our Courts from Foreign Manipulation Act of 2025 (HR 2675) in April, which would force disclosure of foreign third-party litigation funding and block foreign governments and sovereign funds from investing in federal court cases.
At last year’s APCIA annual meeting, experts noted that few states require disclosure of TPLF, meaning the full scope of the practice remains unclear.
While tax changes targeting litigation funders were dropped from the recent budget bill, the International Legal Finance Association praised that decision. They called it a win for Americans because TPLF helps individuals and small businesses finance lawsuits against large, well-funded opponents.
As lawmakers keep a close watch on third-party funding, the debate is far from over. The tension between transparency, foreign influence, and access to justice continues to shape discussions in Washington.