If you were injured in a car accident and accepted pre-settlement cash from a litigation funder, your funding agreement may now be sitting on a defense attorney’s desk — and it could be reshaping how much your case is worth. A wave of legislation and appellate rulings that took effect in 2025 and 2026 has fundamentally changed how litigation funding disclosure car accident settlement negotiations work across the country. From New York’s landmark consumer protection law to seven states enacting new disclosure statutes, injured claimants, their attorneys, and defense counsel all face a new legal landscape that demands immediate attention.
What Is Third-Party Litigation Funding in Car Accident Cases?
Third-party litigation funding (TPLF) is an arrangement where an outside investor — often a hedge fund, private equity firm, or specialized litigation finance company — advances cash to an injured plaintiff in exchange for a portion of any eventual settlement or verdict. In car accident cases, claimants who are out of work, facing mounting medical bills, and waiting months or years for a fair settlement have increasingly turned to these funders for financial relief. The funder takes on the risk that the case may lose; if it wins, the funder collects a predetermined share of the recovery.
For years, these agreements operated in near-total secrecy. Plaintiffs’ attorneys successfully argued that funding files were irrelevant, privileged, or both. That era is ending rapidly. Use our personal injury settlement calculator to understand your baseline recovery before factoring in any funder payoff obligation — because the gap between gross settlement and net recovery can be significant once a funder’s repayment waterfall is applied.
The Lituma Ruling: Why Car Accident Funding Files Are Now Discoverable
The most consequential judicial development shaping litigation funding disclosure car accident settlement practice in 2026 is the Appellate Division First Department’s November 20, 2025 ruling in Lituma v. Liberty. The court affirmed a lower court order requiring a personal injury plaintiff to produce discovery into her third-party litigation funding — clearing a path that plaintiffs’ attorneys had successfully blocked for nearly a decade.
The facts of Lituma are instructive for any car accident claimant or attorney. The defendants raised a fraud counterclaim alleging the accident was staged. The court held that the funding file was discoverable specifically because the materials could reveal a financial motive for fabricating the incident. In other words, when a funder’s profit depends on a case succeeding, and the defense alleges the underlying collision was manufactured, the financial relationship becomes directly relevant to the fraud allegation.
This ruling has enormous implications beyond staged-accident fraud. Defense attorneys can now argue that funding files are discoverable whenever the existence of a financial stake by a third party is arguably relevant to credibility, motive, or damages inflation. Attorneys handling car accident claims should review Justia’s appellate opinions for developing case law in their jurisdiction, as courts in multiple states have begun citing Lituma as persuasive authority.
What the Lituma Decision Means for Your Settlement
Defense counsel now has a blueprint for seeking TPLF discovery in any car accident case where a funding agreement is suspected. Once a funding file enters discovery, the defense gains visibility into: the funder’s assessment of case value, internal communications about the strength of liability, projected settlement ranges, and any conditions the funder placed on settlement authority. Each of these can be used to challenge the plaintiff’s claimed damages or to argue that an inflated demand is funder-driven rather than injury-driven.
Seven States Enacted TPLF Disclosure Statutes in 2025
Even before a court orders discovery, statutory disclosure requirements in multiple states now mandate that funding agreements be identified or produced automatically. Seven states — Arizona, Colorado, Georgia, Kansas, Montana, Oklahoma, and Tennessee — adopted litigation funding disclosure statutes in 2025, each with varying mandatory disclosure triggers, prohibitions on funder control of litigation strategy, and in some cases joint liability provisions that expose funders to adverse cost awards.
The practical effect for litigation funding disclosure car accident settlement negotiations in these states is significant. Plaintiffs’ attorneys must now disclose the existence of a funding agreement early in litigation — often at the initial disclosure or scheduling conference stage — rather than waiting for a targeted discovery request. This changes negotiation dynamics because defendants know from day one that a funder is in the picture, which affects how aggressively they evaluate early settlement and how they assess the plaintiff’s financial pressure to resolve.
Commercial truck accident cases present particular complexity because interstate defendants regularly litigate across multiple state jurisdictions simultaneously. Understanding how disclosure rules vary state by state is essential — compare your options with a truck accident calculator that can help you model multi-jurisdiction recovery scenarios.
| State | Disclosure Trigger | Funder Control Prohibition | Joint Liability Exposure | Effective Date |
|---|---|---|---|---|
| Arizona | Mandatory at initial disclosure | Yes | Yes | 2025 |
| Colorado | Upon written request | Yes | No | 2025 |
| Georgia | Mandatory at initial disclosure | Yes | Yes | 2025 |
| Kansas | Mandatory at initial disclosure | Yes | No | 2025 |
| Montana | Upon written request | Yes | No | 2025 |
| Oklahoma | Mandatory at initial disclosure | Yes | Yes | 2025 |
| Tennessee | Mandatory at initial disclosure | Yes | Yes | 2025 |
Sources: Arizona State Legislature; state legislative records for CO, GA, KS, MT, OK, TN (2025 sessions).
New York’s Consumer Litigation Funding Act: The 25% Cap and What It Means
New York’s approach to litigation funding disclosure car accident settlement regulation goes further than most states on the consumer protection side. The state passed its Consumer Litigation Funding Act in early 2026, with the law’s core provisions taking full effect on June 17, 2026. The law’s most important features for injured car accident claimants are: a hard cap limiting the funder’s total take to no more than 25% of the plaintiff’s net recovery, a 10-business-day cancellation window giving plaintiffs the right to rescind the agreement penalty-free after signing, and an explicit bar prohibiting the funder from steering, directing, or influencing settlement decisions.
The 25% cap is a meaningful consumer protection in cases involving serious injuries. Without a cap, funders operating under older agreements sometimes claimed 40%, 50%, or even higher percentages — particularly in cases that took longer than projected to resolve, with compounding fees that eroded net recovery dramatically. New York’s cap creates a statutory ceiling that attorneys must now build into their settlement modeling from the moment a client discloses a funding agreement.
The Net Recovery Waterfall: How Funder Payoff Reduces Your Car Accident Settlement
Understanding the recovery waterfall is essential before you evaluate any settlement offer. Here is how the distribution typically flows in a car accident case subject to a TPLF agreement under the New York model:
- Gross settlement received — the total amount paid by the defendant or insurer.
- Attorney’s contingency fee deducted — typically 33% of gross in car accident cases, or higher if the case goes to trial.
- Litigation costs deducted — expert fees, deposition costs, medical record expenses.
- Medical liens and health insurer subrogation deducted — Medicare, Medicaid, and private insurer reimbursement claims are satisfied next.
- Funder repayment calculated — under New York law, the funder’s share cannot exceed 25% of the plaintiff’s net recovery (i.e., what remains after steps 2–4).
- Plaintiff’s net recovery — what actually reaches the claimant’s pocket.
On a $200,000 car accident settlement, for example: after a 33% attorney fee ($66,000) and $15,000 in costs and liens, the plaintiff’s net before funder repayment is approximately $119,000. The funder’s cap at 25% of that net equals $29,750 — meaning the plaintiff takes home roughly $89,250. Without the cap, a funder claiming 45% of gross would collect $90,000, leaving the plaintiff with almost nothing. This is why the statutory cap and disclosure obligations work together: injured claimants deserve to know this math before signing a funding agreement and before accepting a settlement offer.
The Federal Litigation Funding Transparency Act: What Congress Is Proposing
Congress is moving toward a federal framework. In February 2026, Senator Chuck Grassley introduced the Litigation Funding Transparency Act of 2026 (Senate Bill S.3826), which proposes sweeping federal regulation of TPLF in civil litigation. The bill’s core provisions would require disclosure of all outside investors in a litigation funding arrangement, restrict funders from exercising any control over litigation or settlement strategy, and bar funders from accessing confidential discovery materials produced under protective order.
The foreign funding concern is particularly prominent in the Senate bill’s findings. National security advocates have raised alarms about sovereign wealth funds and foreign state-linked entities funding American litigation as a form of economic or strategic influence — a concern that extends to personal injury mass tort and class action cases. For litigation funding disclosure car accident settlement purposes, the federal bill’s most immediate practical impact, if enacted, would be a mandatory disclosure requirement that supersedes state-by-state variation, creating uniform rules for multi-district and interstate car accident litigation.
You can track the bill’s legislative status directly at Congress.gov. As of mid-2026, the bill remains in committee, but its introduction signals that federal standardization of TPLF disclosure is a near-term reality that attorneys and claimants should anticipate in their litigation planning.
How Funding Disclosure Reshapes Car Accident Settlement Negotiations
For defendants and insurance carriers, TPLF disclosure creates new settlement leverage. Once an insurer knows a plaintiff has borrowed against the case — and knows the funder’s repayment obligation will consume a portion of any recovery — adjusters can model the plaintiff’s actual financial pressure more precisely. A plaintiff who has borrowed $40,000 against an expected six-figure settlement faces mounting daily pressure as funder fees compound. Defendants may offer less, or delay longer, knowing that financial stress on the plaintiff’s side will eventually push toward resolution.
For plaintiffs’ attorneys, the strategic calculus has shifted. Every funding agreement signed by a client is now a potential liability in discovery. Attorneys practicing in Arizona, Georgia, Oklahoma, Tennessee, and other mandatory-disclosure states must counsel clients at intake about how a funding agreement will be disclosed to opposing counsel, how it may be used to challenge credibility, and how it will affect net recovery math. This is not optional ethical guidance — in several states, failure to disclose a known funding agreement can constitute a discovery violation with sanctions implications.
For claimants themselves, the most important takeaway is to use a recovery calculator before signing any funding agreement. Modeling your expected net recovery under the funding waterfall, especially under a statutory 25% cap like New York’s, gives you a realistic picture of what financial assistance is actually worth relative to its cost. Brain injuries from car accidents, which often involve long litigation timelines and high damages, carry particular risk of funder fee compounding — use a brain injury calculator to estimate long-term recovery needs before committing to a funding arrangement.
Fraud-Motive Exposure: The Hidden Risk in Funding Disclosure
The Lituma decision introduced a concept that will reappear in car accident litigation for years: the idea that a third-party funder’s financial stake creates discoverable evidence of fraud motive. Defense attorneys in staged-accident cases, soft-tissue injury disputes, and cases involving contradictory surveillance evidence have already begun arguing that the existence of a funding agreement — particularly an agreement signed shortly after the alleged accident — is circumstantial evidence of a pre-planned scheme.
This argument does not require proof that the plaintiff actually staged the accident. It requires only that the defense plead a fraud counterclaim and then use the Lituma standard to seek the funding file in discovery. Once in hand, the file’s contents — funder’s case evaluation memos, projected settlement ranges, internal communications about the strength of liability — become tools for deposing both the plaintiff and potentially the funder’s representatives. Plaintiffs’ attorneys must understand that signing a client up with a funder in a liability-disputed car accident case is no longer a private financial arrangement. It is now a potentially public document that will enter the litigation record in many jurisdictions.
Frequently Asked Questions About Litigation Funding Disclosure in Car Accident Cases
Does my car accident attorney have to tell the other side about my litigation funding agreement?
In seven states that enacted TPLF disclosure statutes in 2025 — Arizona, Colorado, Georgia, Kansas, Montana, Oklahoma, and Tennessee — the answer is often yes, automatically, at initial disclosure or upon request. In New York, the Consumer Litigation Funding Act effective June 17, 2026 imposes additional transparency requirements on the funding agreement itself. In other states without specific statutes, courts may still order disclosure following the Lituma standard if a defendant can show the funding file is relevant to the claims or defenses in the case. Your attorney should advise you about the specific rules in your jurisdiction at the time you sign any funding agreement.
How does New York’s 25% cap on funder recovery work in a car accident settlement?
Under the New York Consumer Litigation Funding Act, effective June 17, 2026, a funder’s total take from a consumer litigation funding agreement cannot exceed 25% of the plaintiff’s net recovery. Net recovery means what is left after attorney fees, litigation costs, and lien repayments are deducted from the gross settlement. So on a $150,000 car accident settlement, if attorney fees and costs total $60,000, the plaintiff’s net is $90,000 — and the funder’s maximum share is $22,500. The cap prevents older-style compounding fee structures where funders claimed 40%–50% of gross, which sometimes left plaintiffs with little or nothing.
Can my litigation funding agreement affect how much the insurance company offers to settle my car accident claim?
Yes, in jurisdictions where disclosure is mandatory or where a court has ordered production of the funding file. Once a defense attorney or insurance carrier knows that a funder is involved — and can estimate the funder’s repayment obligation — they may use that information to calculate your actual financial pressure to settle. If your funder fees are compounding and your attorney has communicated your need to resolve the case, defense adjusters may offer less than your claim’s full value, knowing you face mounting financial pressure. This is one reason why understanding the full funding disclosure and recovery waterfall before accepting or rejecting a settlement offer is critically important.
What is the federal Litigation Funding Transparency Act and how could it affect my car accident case?
Senator Chuck Grassley introduced Senate Bill S.3826, the Litigation Funding Transparency Act of 2026, in February 2026. As of mid-2026, it remains in Senate committee. If enacted, the law would require disclosure of all outside investors in a litigation funding arrangement in federal civil cases, restrict funders from controlling or influencing litigation strategy or settlement decisions, and bar funders from accessing confidential discovery materials. For car accident cases filed in federal court — including many interstate trucking accident claims — the bill would create uniform disclosure obligations superseding the current patchwork of state rules. Plaintiffs and attorneys should monitor the bill’s progress as federal standardization could take effect within the next legislative cycle.
If I cancel my litigation funding agreement, can the funder still claim part of my car accident settlement?
Under New York’s Consumer Litigation Funding Act, you have a 10-business-day cancellation window after signing to rescind the agreement penalty-free. If you cancel within that window, the funder has no claim on your settlement. Outside that window, cancellation terms depend on your specific contract. In states without a statutory cancellation right, the agreement’s terms govern. This makes it essential to read your funding agreement carefully — ideally with your attorney present — before signing, and to act quickly if you have second thoughts. Some agreements allow early repayment of only the principal advanced, while others impose minimum fees regardless of when you repay. Always understand your exit rights before committing to a funding arrangement in connection with your car accident claim.
Legal disclaimer: This article is provided for general educational purposes only and does not constitute legal advice; consult a licensed attorney in your jurisdiction for guidance specific to your car accident claim and any litigation funding arrangement you are considering.
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Ryan Fletcher is an auto accident claims researcher with extensive knowledge of car accident liability, insurance claims processes, and settlement values across all 50 US states. Ryan is not an attorney and the information provided is for educational purposes only.