The Evolving Landscape of Litigation Funding & Insurance: What the next generation of disputes lawyers needs to know.

The Rise of Insurance as an Alternative, or Complement, to Litigation Funding

Litigation insurance has emerged as a fast-growing solution for clients seeking to manage the costs of legal disputes. In recent years, there has been a marked increase in transactions insuring clients’ own legal fees and expenses. As awareness of these products spreads, particularly among sophisticated commercial clients, this trend is likely to continue.

While there are scenarios where third-party litigation funding is essential - particularly when external capital is required to bring a claim - the market appears to be bifurcating. Litigation funding is increasingly used where liquidity is a constraint; litigation insurance is gaining traction where capital is available, but clients wish to hedge legal spend or improve budget certainty.

For the next generation of dispute resolution lawyers, familiarity with litigation funding is no longer enough. Clients are increasingly expecting comprehensive risk management strategies, which include both financing and non-financing solutions. Understanding litigation insurance - and when it may be appropriate - will become a core competency for those advising in commercial disputes.

Growing Tensions: Conflicts Between Insurers, Brokers, and Funders

The relationship between the insurance and litigation finance sectors is under increasing strain - and this tension is unlikely to abate. Leading insurance market players including Chubb, Everest Re, and notably Marsh McLennan, have publicly linked third-party litigation funders - and those who support them, including litigation insurers - to rising “nuclear verdicts” and inflationary pressure on premiums across multiple classes of insurance.

This is not a passing debate. These statements mark the beginning of a coordinated, long-term campaign by parts of the insurance industry to push back against litigation finance. It’s already evident that insurers and brokers are being encouraged - if not pressured - to adopt policies distancing themselves from funders and the products that support them. Public declarations, as well as shifts in underwriting appetite and brokerage practices, are expected to follow.

This presents a growing challenge for disputes lawyers. If a broker advising on litigation insurance, or an insurer providing capacity, has publicly aligned itself against litigation funding, lawyers must carefully assess whether a conflict of interest is at play. Can that entity objectively support a client operating within the litigation finance market - or might its corporate stance undermine its ability to act in the client’s best interests?

Lawyers, as well as litigation funders and clients themselves, will need to scrutinize whether their insurance partners are genuinely neutral risk-transfer facilitators or are subject to competing institutional pressures that may limit their effectiveness or independence.

Risk of Negligence: A Quiet but Escalating Threat

This final point may be the most significant - and the most overlooked. As litigation insurance products become more mainstream - not just for own-costs cover, but also for products like judgment preservation insurance (insuring a favourable decision against appeal risk) and litigation buy-out insurance (used to contain or ring-fence liabilities) - so too does the expectation that lawyers will advise on them.

Lawyers who fail to explore or mention these options at the outset of a dispute may expose themselves to professional negligence claims if a client later learns that a potentially outcome-altering viable insurance solution was available.

In a world where clients are increasingly litigious, particularly in high-stakes, high-cost disputes, the omission of advice around litigation insurance may not be viewed as an oversight - but as a material failure of professional duty.

Final Thoughts

The intersection of litigation funding and insurance is complex, politically charged, and fast-evolving. For future-facing disputes lawyers, passive awareness is no longer enough. A deep, practical understanding of both funding and insurance solutions - and of the institutional dynamics shaping their availability - will be essential to meeting client expectations and avoiding professional risk. Lawyers in the next generation would be well advised to build relationships from the ground up with funders, insurers and brokers so that they are abreast of market developments and product structures. And, increasingly importantly, that should mean that they have go-to trusted contacts to help them identify on a case-by-case basis suitable financing and risk-mitigation products and packages to suit their clients’ needs and objectives in disputes.