New York Regulates Litigation Funding and Expands Fraud Discovery

New York has enacted a comprehensive statutory framework governing consumer litigation funding while courts simultaneously signal broader access to funding information in fraud-tainted cases. Together, these developments alter how claims adjusters and defense teams assess motive, credibility, and financial incentives behind personal injury claims.

The Consumer Litigation Funding Act, signed by Kathy Hochul, establishes mandatory disclosures, cancellation rights, and registration requirements for third-party funders. For claims professionals, the law creates clearer documentation around funding terms that may later become relevant in discovery or examinations under oath. Restrictions on funder influence over settlement decisions and attorney independence are also aimed at curbing practices that can inflate claim severity or prolong litigation.

At the same time, the Appellate Division’s decision in Steven Lituma et al. v. Liberty Coca-Cola Beverages LLC et al. confirms that litigation funding arrangements may be discoverable when defendants present credible evidence of fraud. The ruling reinforces New York’s broad discovery standard and gives trial courts discretion to allow funding discovery when it bears on motive or alleged misconduct. For adjusters handling suspected staged accidents or organized fraud, this opens another avenue to support affirmative defenses and challenge credibility.

Taken together, these changes move litigation funding into a more transparent, regulated space while equipping courts and defendants with tools to probe funding where it intersects with fraud. Claims teams operating in New York should anticipate more frequent discovery requests tied to funding, adjust fraud investigation protocols accordingly, and coordinate early with counsel on how funding disclosures may affect valuation and defense strategy.