Zurich concerned over continuing rise in EU litigation funders

Zurich Insurance wants more focus on the rising number of litigation funders setting up in the EU and is concerned that these moves mean legal firms think mass class actions will spread to the region, despite efforts by law makers to avoid this scenario. Executives from the insurer warned risk managers that the Netherlands and Germany are becoming hotspots for litigation funders in the EU, with Portugal also on the watch list. The UK, meanwhile, remains a target. “It concerns us that litigation funders setting up shop across Europe on mass, and bringing different tactics moving from case funding to portfolio funding, is not drawing more attention,” said Penny Seach, group chief underwriting officer at Zurich. “It doesn’t take a lot to ask what is the money seeing that we are not yet seeing. It is a strong signal for us. That is why we want to see more disclosure and transparency around litigation funding and think that is of utmost importance,” she added. According to Zurich, that are now more than 130 litigation funders already set up in Europe. Tom Thornberry, group chief claims officer at Zurich, said the big driver of litigation in the US is the fact that its legal system uses juries that tend to award big sums, whereas in Europe claims will likely be driven by the highly regulated operating environment for business. New EU regulations have come into force, or are coming down the line, that will spark more liability and litigation for European firms, not least the Collective Redress Directive (CRD), which some fear will pave the way for US-style litigation abuse. Then there is the revised Product Liability Directive (LPD) and the General Data protection Regulation (GDPR), in addition to a raft of ESG rules creating exposures. “We know the EU is heavily regulated and we are seeing a lot coming through on ESG and data privacy. All of these factors put obligations on organisations, and with collective action regimes in Europe coupled with litigation funders, it doesn’t take too much to jump to where we may see this risk rise,” said Thornberry. “There is now emerging litigation risk in the EU.” He explained that the majority of these litigation funders are setting up in Germany and the Netherlands. “From a German perspective, it is a case of wait and see the evolution, but we have seen one the highest numbers of litigation funders opening offices there. So clearly Germany is an environment that these investors are seeing potential value in. We need to watch this and understand what they are seeing there and what we need to keep an eye on. With German businesses under pressure at the moment, there are several avenues where we think litigation could arise,” he said. The Netherlands, meanwhile, is becoming the forum where collective actions can be heard in the EU, and the amount awarded to class actions in the UK has risen hugely over the last few years. “One signal we are hearing about, and want to understand more, is litigation funders taking equity stakes in law firms in the UK. That’s a strong signal,” said Seach. “And we have been watching Portugal, which wasn’t previously on our radar. Most of the lawsuits and collective action coming out of Portugal is around competition… data protection and anti-competitive behaviour. Most of it is coming from one advocacy group.” The EU believes it has put in safeguards to avert mass style US litigation spreading to Europe through the CRD, but it remains to be seen if this will play out. The mounting number of litigation funders setting up in Europe suggests they think otherwise. “The question is, over time, are those safety guards going to work? As with any evolution of legal systems, things change. There are just so many different areas of focus, whether it is data privacy, AI or human rights issues that funders are looking at as an avenue to invest in, in order to get a return. But over time we will see how this plays out,” said Thornberry. Emerging litigation risk in Europe is adding to the problems companies face in the US, where corporates were hit with a 15-year high $14.5bn of jury verdicts in 2023. Zurich is advocating for changes that would help reduce litigation abuse and third-party litigation funders. It recently signed an open letter that called on the US judiciary to enact rules around litigation funders and said it is backing similar moves in the EU. “We know the US lawmakers at the federal level have pushed forward a bill to manage the transparency of funding. We expect similar bills from the EU to be introduced in 2025,” explained Thornberry. And he said Zurich is working hard on other ways to help clients manage this risk. “It is crucial we work with customers,” continued Thornberry. “We have a dedicated resource for this in the US to ensure customers understand and mitigate the risks… and internally we do proactive claims management so we have the right level of resource. In the US we have doubled our casualty team over the last few years.” “It is critical that we are proactive from a claims perspective, so we are driving safety culture along with Zurich Resilience Solutions to mitigate against the risk and ensure we are sharing non-sensitive data with our insureds, so that they are informed,” he added.

Zurich concerned over continuing rise in EU litigation funders

Netherlands, Germany and Portugal likely targets

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