A Year of Upheaval and Adjustment: The Evolving U.S. Litigation Finance and Insurance Market

It’s fair to say that 2025 has been a turbulent year for the U.S. litigation finance and insurance market. The industry, once seen as a niche financial instrument, found itself under intense scrutiny as legislative, underwriting and market forces collided to reshape the risk landscape.

The first major disruption came from Washington. The threat of the Tillis Bill, a proposal that would have imposed stricter disclosure requirements and potentially harsher tax treatment on litigation funders, sent ripples of uncertainty through the funding community. While the bill has yet to pass, the mere prospect of its enactment prompted investors and insurers alike to pause and reassess their exposure. Funders were understandably cautious, with many delaying new commitments while they awaited clarity.

Insurers who support litigation funders were not immune to the turbulence. Several prominent voices in the industry began questioning whether underwriting insurance coverage for funders created conflicts with the insurers’ broader liability portfolios. The result was a notable retreat by some of the sector’s largest brokers, either stepping back entirely or narrowing their participation in parts of the market perceived as too politically or commercially sensitive.

Adding fuel to the fire, certain aggressive underwriting strategies backfired. A handful of high-profile judgment preservation policies, designed to protect claimants or funders in the event of an appeal, resulted in large losses after judgments were overturned. In several instances, insurers had written policies with enormous limits only to see the underlying awards fully reversed. The fallout was predictable: a rapid withdrawal of capacity and a far more cautious approach, which, temporarily, contaminated risk appetite for any policies supporting claimant litigation even where the products were entirely unrelated to judgment preservation.

So where does that leave the U.S. litigation insurance market today?

While some might describe it as bruised, it is far from broken. There is still capacity available, albeit with insurers now far more selective. Many are capping their exposure per case and applying tighter ratios between the indemnity level and the claim value. The new “Market 2.0” iteration of judgment preservation insurance remains available, but pricing and coverage terms are notably different from the pre-2024 boom period.

Interestingly, one area showing resilience, and even quiet growth, is own-side costs insurance (also known as attorney fee insurance). This line, largely detached from the political and regulatory noise surrounding third-party funding, covers the legal fees and expenses of self-funding commercial plaintiffs.

In essence, it’s akin to the capital protection insurance used by funders, but instead of insuring a funder, the indemnity covers a company’s own litigation outlay. Given that the overwhelming majority of commercial disputes are self-funded, it’s clear this represents a potentially much larger and more significant market—one that avoids political criticism, since its application extends equally to both large and smaller enterprise plaintiffs.

Whether a company generates $10 million or $10 billion in annual revenue, pursuing litigation or arbitration always involves financial risk. No lawyer, however confident, can promise a guaranteed outcome. For corporate plaintiffs, the ability to insure their own fees and expenses represents sound risk management, particularly in an environment of rising legal budgets and unpredictable outcomes.

For law firms largely operating on the traditional hourly billing model, this insurance also presents an opportunity. It allows firms to have more constructive conversations with clients about cost certainty and budget protection, positioning the coverage as a practical complement to the traditional retainer.

In short, while 2025 has been a year of correction and recalibration, the U.S. litigation insurance market remains open, leaner, wiser and arguably healthier. Savvy lawyers who adapt to its new contours will find that opportunities exist to both address longstanding client gripes while positioning their firms as forward-looking and commercially aligned with clients’ evolving needs.