Third-party litigation funding and rising real estate and hospitality claim costs

You're managing a 200-unit apartment complex in a mid-sized market. One Tuesday afternoon, a tenant slips on a wet lobby floor during routine maintenance. Minor injuries. Incident report filed. Routine workers' comp-style claim, right?

Not anymore.

Within weeks, the tenant's lawyer connects with a litigation funding firm. The investor reviews your property's policy limits, recent market conditions, and your jurisdiction's track record with jury awards. They do the math. They see opportunity. Suddenly, what should've been a $50,000 settlement becomes a $5 million lawsuit — because now there's a well-funded investor betting on a big payoff.

This is third-party litigation funding (TPLF) in action, and it's reshaping the liability landscape for real estate and hospitality companies in ways many operators may not fully understand.

Understanding the TPLF investor mindset

TPLF is when outside investors — hedge funds, private equity firms, or sovereign wealth funds — finance civil lawsuits in exchange for a share of any settlement or jury award. It sounds straightforward, but here's what makes it risky for your business: these investors have financial incentives that may not always line up with reaching a reasonable resolution.

A plaintiff's lawyer negotiating on behalf of an injured party might settle a case for $500,000. But a TPLF investor backing that same case? They're running the numbers differently. They're asking, "What's the jury award potential? What are the policy limits? How favorable is this jurisdiction to plaintiffs?" If the numbers look good, they may finance the lawsuit and push for a bigger payout — because their share of a $3 million verdict is far more attractive than their cut of a $500,000 settlement.

Since 2017, the TPLF industry has more than doubled globally, with the U.S. representing 52% of that market.¹ That means a lot of investor capital is looking for lawsuits to fund. And real estate and hospitality? You're on their radar.

Why your industry is a target

Real estate and hospitality companies can be attractive to TPLF investors for a simple reason: substantial policy limits and high asset values. Whether it's a guest injury claim at a hotel, a tenant dispute in a multifamily property, or a premises liability issue at a commercial building, these cases often involve meaningful insurance coverage. Property disputes, tenant conflicts, and guest injury claims — the kinds of incidents that happen regularly in your business — can become fundable opportunities from an investor's perspective.

Add another ingredient to the mix: social inflation and the rise of nuclear verdicts (jury awards exceeding $10 million). In 2024 alone, there were 135 nuclear verdicts, with 49 exceeding $100 million.¹ These are no longer isolated events. And when TPLF investors see data like that, they see a playbook.

How it plays out in practice

Here's a realistic scenario:

Your hospitality property experiences a workplace injury. The employee's medical bills are significant, but recovery is expected. Standard liability situation. Then the plaintiff's attorney connects with a TPLF firm. The investor reviews your location's litigation history, discovers it's in a jurisdiction known for high awards, and notices your umbrella policy limits are $5 million. They fund the case and encourage the plaintiff's legal team to pursue maximum damages.

The litigation drags on. Both sides incur legal fees. Discovery gets expensive. The TPLF investor has little incentive to settle early — they're betting on a larger jury award. By trial time, the case has ballooned into something far more complex and costly than anyone anticipated. Even if your insurance covers it, you may face premium increases, policy exclusions, and potential coverage gaps.

The premium shock and coverage squeeze

This is where TPLF's impact hits your bottom line directly. Commercial auto and umbrella liability premiums have seen some of the steepest and most persistent increases in recent years, with TPLF and nuclear verdicts frequently cited as contributing factors. Hospitality properties and real estate portfolios have been hit particularly hard because of the frequency and severity of injury claims in these sectors.

But it's not just about premium increases. Insurers are also tightening terms and expanding exclusions. Standard general liability and umbrella policies increasingly exclude exposures like punitive damages, assault and battery, firearms liability, and abuse and molestation. If your lender requires you to maintain these coverages, you may need to purchase them separately through specialty markets — adding another layer of cost and complexity.

What you can do about it

Understanding the TPLF playbook is your first line of defense. Here's what to prioritize:

Benchmark your limits. Compare your coverage against peers in your industry, asset class, and geography. With nuclear verdicts becoming more common, making sure your limits are adequate is no longer optional — it's essential.

Know your jurisdiction. A plaintiff-friendly market can mean higher verdict awards and potentially more TPLF investment. Review local case law and litigation trends before opening or expanding locations. Understanding your geographic risk profile directly impacts your insurance strategy and bottom-line exposure.

Close coverage gaps early. Review what your policies actually exclude. Identify gaps and address them with specialty coverage before a claim arises, not after. This is especially important in today's market.

Engage a strategic broker. Work with insurance professionals who understand your jurisdiction's litigation environment and can help calibrate your limits, identify exclusion risks, and flag operational factors that influence exposure.

The bottom line

TPLF is here, it's growing, and it's changing how civil litigation works in the real estate and hospitality sectors. But you don't have to be caught off guard. By understanding how well-funded investors think about your industry's claims — and by taking proactive steps to audit your coverage and risk profile — you can help protect your business in today's complex liability environment.

To explore more insights, download our full report, Understanding Third-Party Litigation Funding’s Impact on Real Estate and Hospitality, and learn how Marsh Agency can help you assess and manage this risk.

Source:

1 Marathon Strategies, Corporate Verdicts Go Thermonuclear, 2025 Edition