The Washington Legislature is set to consider House Bill 2255, a measure designed to regulate third-party litigation financing by instituting registration requirements, disclosure obligations, interest rate caps and limits on financiers' influence over legal strategy and settlements.
Under HB 2255, third-party litigation financiers would be required to register with the state and pay an annual fee. Contracts would have to clearly disclose the total repayment amount, annual percentage rate and payment schedule. Consumers would be able to cancel agreements within five business days without penalty.
Meanwhile, interest rates would be capped at 12%, according to a report from BestWire. Financiers would also be prohibited from paying referral fees to attorneys or law firms and from directing or influencing legal strategy, settlement decisions, or attorney-client relationships. Full disclosure of all litigation funding agreements would be required to all parties in a lawsuit, including the complete agreement itself. Violations would be treated as unfair or deceptive acts under Washington's consumer protection laws, the report said.
Insurance industry implications
Rep. Amy Walen, the bill's sponsor, highlighted that rising legal settlements, often fueled by "nuclear verdicts" and extended statutes of limitation, contribute directly to higher insurance premiums for businesses and individuals. Recent changes in state law, including relaxed solicitation rules for lawyers and expanded opportunities for litigation finance, have created additional upward pressure on claims costs.
By mandating transparency in third-party funding agreements, the bill could help insurers better understand settlement dynamics, price risk more accurately, and mitigate sudden premium increases tied to outsized verdicts, the report said.
Furthermore, analysts suggest that increased transparency in litigation financing could reduce unpredictability in claims payouts, particularly in commercial liability lines. In markets with similar regulations, insurers have reported up to a 5% to 10% reduction in average claim costs over three years, largely by allowing underwriters to more accurately anticipate settlement exposure and adjust pricing accordingly.
Broader legislative context
HB 2255 is part of a broader legislative focus on insurance market stability. The Office of the Insurance Commissioner is pushing additional measures, including restrictions on post-loss assignment of benefits from repair contracts, creation of a home mitigation program, and expanded authority to order insurers to pay restitution for regulatory violations.
While trial lawyers warned that regulation could limit access to justice, proponents argue that transparency in litigation finance is essential to prevent speculative capital from inflation claims costs and insurance premiums.
If enacted, HB 2255 could create a more informed and balanced environment for litigants, insurers and regulators, while clarifying the financial flows that influence legal outcomes and market rates, the report said.
