Insurance Europe and 10 other associations have urged the European Commission to introduce regulations for private third-party litigation funding (TPLF) within the European Union.
The joint call highlights concern over the lack of oversight in the sector and its potential implications for the justice system and economic security.
TPLF allows private investors, such as hedge funds and investment firms, to finance legal proceedings in exchange for a share of any awarded compensation. According to the statement, this practice operates in a regulatory vacuum at the EU level, raising ethical questions and risks for claimants, businesses, and the judicial process.
The organisations expressed their concerns in a joint statement, noting the need for impartial and balanced civil justice systems that support both claimants' and defendants' rights. They warned that unregulated private TPLF could lead to a rise in speculative litigation, creating a chilling effect on innovation, investment, and competition across the EU.
The statement emphasised that such a scenario could undermine public trust in European justice systems at a time when maintaining confidence in democratic institutions is critical.
The statement outlined the financial model of TPLF, which often involves funders signing confidential agreements with lawyers or entities to invest in lawsuits. These funders may claim significant portions of compensation – sometimes 40% or more – raising concerns about predatory litigation practices and reduced redress for claimants.
It is worth noting that, unlike legal and financial services, the litigation funding industry remains unregulated and lacks transparency requirements.
The co-signatories cited the growth of private litigation funding in the EU, especially in consumer-focused claims, following the adoption of the Representative Actions Directive. Funders, they argued, frequently control litigation decisions to prioritise their financial returns, potentially at the expense of claimants' interests.
Defendants, facing prolonged litigation and reputational risks, often feel pressured to settle even unsubstantiated claims. Additionally, funders may take disproportionate shares of settlements, leaving little compensation for the claimants who initiated the cases.
Read More: Insurance Europe calls for AILD withdrawal
The joint statement referenced the European Parliament’s 2022 resolution on responsible private funding of litigation as a starting point for regulation. It suggested safeguards such as mandatory transparency in funding agreements, EU-level registration of funders, coverage of adverse costs, caps on funders' returns, and prohibitions on foreign or sovereign state funding in litigation cases.
The statement warned that without proper oversight, European courts could become tools for funders to prioritise profit, undermining trust in legal and financial systems and harming the competitiveness of the EU Single Market.
It further argued that unchecked TPLF could create a culture of excessive litigation, discouraging innovation and ultimately harming consumers and businesses through higher costs and reduced choice.
The appeal for regulation was co-signed by Insurance Europe alongside organisations including the American Chamber of Commerce to the EU, BusinessEurope, the European Chemical Industry Council, DIGITALEUROPE, the European Banking Federation, the European Justice Forum, the European Federation of Pharmaceutical Industries and Associations, EuroCommerce, the US Chamber of Commerce Institute for Legal Reform, and MedTech Europe.
What are your thoughts on this story? Please feel free to share your comments below.
