Third-party funding of litigation, class actions & insurance: at last (some) news

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Publié le 09/07/2025 par Jérôme Goy et Michel Ferrand

INSURANCE LAW

The DDADUE Act of 30 April 2025 recognises, for the first time in French law, the existence of third-party financing of legal proceedings (1).

I. – An old mechanism with no legal framework

• Origins and economic foundations of litigation funding

Litigation is expensive, but it can sometimes be a way of obtaining considerable sums of money. The Anglo-Saxon world knows this, and has taken it into account in a very pragmatic way: it has therefore, invented the financing of legal proceedings by third parties, for whom this constitutes an investment, with a calculated risk.

The litigation funding market, as it is called, is estimated to be worth 8.2 billion dollars in 2024, and should reach 26.4 billion dollars by 2033, according to certain projections (2).

Traditionally, the practice has focused on international arbitration and sophisticated commercial disputes.

An investment for the third party, and a means for the rightful claimant to assert his or her rights, which would remain a dead letter in the absence of funding. These are the two economic fundamentals of this practice.

• An internationally recognised practice, which is gradually gaining ground in Europe

In the United States, the practice is widespread: according to a report published by the Government Accountability Office (GAO) in December 2022 (3), there were 47 players active in the financing of commercial. These financiers managed a total of $12.4 billion in assets and had committed $2.8 billion in new financing agreements in 2021.

US practice is so common that some lawyers specialise in the applicable rules of professional conduct (4).

Some countries (UK, Germany, Netherlands) already allow the practice, with a proper national framework.

Some countries (United Kingdom, Germany, Netherlands) already allow the practice, with a proper national framework.

In England, a 2016 (5) appeal ruling recognised the practice of litigation funding and provided a framework for it by stating that commercial funders can be held jointly and severally liable for legal costs, including on an indemnity basis, even if they are not guilty of misconduct. It also clarifies that the legal structure chosen (e.g. parent company) does not make it possible to escape this liability and confirms that the funding of a lawsuit is compatible with the interests of justice (6). The Civil Justice Council published a report on 2 June 2025 (7), examining the important role of litigation funding in England and proposing reforms to its regulation.

In the European Union, the practice remained governed by national law, until a directive issued jointly by the European Parliament and the Council of the European Union (in the context of group actions) (8).

• In France, litigation funding remains unregulated

French law does not prohibit the practice of litigation funding. Case law regards it as a sui generis contract (9).

From the point of view of lawyers’ ethics the Conseil national des barreaux, in its resolution of 21 November 2015, de facto recognised the practice, while drawing attention to the need to regulate it (10).

II. – Gradual and limited recognition of third-party financing

• Directive (EU) no. 2020/1828 (11)

A European directive dating from 2020 is currently in force, the aim of which is to legalise and provide a minimum framework for third-party financing of group actions as authorised under national law.

It also aims to prevent the conflicts of interest that this practice can create, and to unify the applicable national laws. To this end, the directive provides for a power of review entrusted to the national courts.

• In France, a partial parliamentary construction

In France, a draft law of 15 December 2022 on group actions (12) introduced an amendment (article 1er quater) allowing third parties to finance such actions. This legislation was eventually adopted and promulgated on 30 April 2025 in the DDADUE law (13).

• French transposition: the DDADUE Act of 30 April 2025

Since 30 April 2025, French law has recognised for the first time the financing of legal proceedings by third parties, limited solely to the case of class actions. This represents a partial but major break with the previous legal vacuum.

Article 16 I-D of the DDADUE Act now provides that the funding of class actions by third parties is authorised subject to conditions of transparency, publicity, and absence of undue influence (14). However, the effectiveness of this text is subject to the publication of an implementing decree, which had not yet been issued at the date of this publication.

III. – A changing law, between innovations and persistent shortcomings

• The contribution of group actions to positive law is limited

The aforementioned law provides a framework for the financing of legal proceedings in the context of a class action. It stipulates that the associations bringing the class action may receive funds from third parties, provided that the purpose or effect of this funding is neither to influence the introduction or conduct of the group action, nor to prejudice the interests of the persons represented. It also specifies that this funding is to be published under conditions determined by decree.

The purpose of this provision is to avoid the temptation of an actor who, presenting himself as a white knight to the plaintiff in the class action, would seek to take control of it in order to deviate from its objective or cause it to fail. In the case of major economic players threatened by the group action, there may be a risk that they will try to avoid the disastrous consequences of the class action for their business by ‘infiltrating’ the person bringing the action.

The requirement for transparency by informing the public about the funder will enable any interested party to form their own opinion about the clarity of the funder’s intentions. The methods of publicity will be specified by decree.

• What remains of the previous law

As we have seen above, the possibility of engaging in third-party litigation funding is not the result of specific legislative provisions in this area.

In application of the principle of freedom of trade and industry, this activity is possible, and the financing of legal proceedings by third parties is therefore, exercised more freely outside the scope of the group action (which is now regulated).

The Versailles Court of Appeal had an indirect opportunity to deal with the financing of legal proceedings in a ruling dated 1 June 2006, in which it stated: ‘Whereas the contract for the financing of legal proceedings is sui generis and unknown in the Member States of the European Union, with the exception of countries with a Germanic legal culture (…)’.

In so doing, the Court of Appeal, by declaring that it was not aware of the sui generis contract, nevertheless found and admitted its existence and, what is more, gave full effect to it, since it was on the basis of that contract that one of the parties to the proceedings had sought and obtained a declaration that the French courts did not have jurisdiction. The decision that the French courts did not have jurisdiction was therefore, tantamount to recognising the existence of the contract. This does not preclude the French courts from criticising such a contract in a substantive decision. However, it is not clear at present what provisions of public policy could prevent the validity of such an agreement.

• What about insurance?

Although third-party funding of group actions is now recognised in positive law, insurance remains excluded from the scope of such actions.

An indirect link between the nature of litigation funding and the insurance mechanism has been made by a specialised fund in the following terms: four major European insurers intervene with the specialised fund in order to validate each funding application; and they cover the two main risks of this asset class: the duration of the proceedings (limited to five years) and the risk of loss. In return, over and above the premium, they receive 50% of the gains in the event of success. With this cost, the fund is aiming for a return of 1.5 times the investment after four years. But this refers to aimed at insurers as institutional investors, not as insurers.

A 2022 European Parliament resolution also proposes a directive on litigation funding (15). Insurance is not excluded a priori.

When it comes to the insurance sector and the financing of legal proceedings by third parties, the scale of the market is palpable when you consider that:

• After banks, insurers are the most frequently sued companies;

• The proportion of insurance claims settled because of litigation between the insurer and a third party, or its customer is growing;

• The case of Covid business interruption claims showed how certain events gave rise to several tens of thousands of legal proceedings between policyholders and recalcitrant insurers. Whether in the context of a group action (identical insurance contracts) or not, financing by third parties would very probably have optimised the compensation of Covid victims by their insurers.

Insurance for legal costs. Where there’s risk, there’s insurance: but what are the risks in litigation funding? In litigation, there is the chance of winning, but also the risk of losing. Companies concerned about losing can take out insurance to cover the risk of losing the case, thereby limiting their legal costs.

In France, this issue hardly arises at all, as the practice of litigation funding is not yet highly developed.

The American market, on the other hand, has developed insurance solutions to offset the risk of loss of chance in a lawsuit financed by a funder.

There are two types of insurance product to meet this need:

• BTE insurance (Before-the-event)
• ATE insurance (After-the-event)

Some companies take out insurance, a kind of top-of-the-range ‘legal protection’, before the disputed incident occurs this refers to BTE insurance. This insurance can be used to finance certain disputes and/or investigations linked to proceedings.

Others, much more frequently, take out ATE insurance, which does not involve financing a claim for compensation, but rather financing litigation. The premiums for ATE insurance vary considerably depending on the risk associated with the lawsuit. The purpose of this product is to reduce the risk of costs associated with settlement offers, since it covers the insured’s legal liability to pay the defendant’s costs in the event of an unfavourable judgment and subsequent award of costs. It is also possible to obtain coverage for one’s own disbursements.

• And finally: a start on putting the group action in the hands of the parties

Although they have an indirect impact on the activity of third-party litigation funders, certain key provisions of Act 2025-391 pave the way for an extension of the activity of third-party litigation funding.

Large economic players do not need a class action to assert their rights in court. These disputes are of no interest to third-party funders because they are not of sufficient financial interest for the funder’s expectation of gain to be sufficient to induce it to take part in the proceedings.

It is therefore, through the aggregation of small and medium-sized disputes that the third-party funder is opening up a much wider field of action.

Prior to the Act of 30 April 2025, class action was entirely in the hands of approved consumer associations. The latter proved to be particularly reluctant to engage in group action, and injured parties had no simple means of bypassing them (16).

While the new law still stipulates that class actions must be brought by an approved association, which tends to limit the number of possible players, it nevertheless specifies that any association can be approved if it can prove that it has been effectively and publicly active for 12 consecutive months in defending the interests that have been harmed.

This opens the door to the creation of ad hoc associations by injured parties who, subject to a one-year waiting period and beyond the inevitable administrative delays, may find themselves invested with the capacity to bring a class action.

This liberalisation of the conditions of access to class action, while not complete, is the seed of a significant extension of the activity of financing legal proceedings.

Michel Ferrand Jérôme Goy

 

SOURCES :

• Law no. 2025-391 of 30 April 2025, DDADUE law. URL: https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000051538879
• Directive (EU) 2020/1828 of 25 November 2020. URL: https://eur-lex.europa.eu/legal-content/FR/TXT/PDF/?uri=CELEX:32020L1828
• Senate verbatim report, session of 6 February 2024. URL : https://www.senat.fr/seances/s202402/s20240206/s20240206011.html
• Étude d’impact, Assemblée nationale, Projet de loi DDADUE, n° 2142. URL: https://www.assemblee-nationale.fr/dyn/17/dossiers/diverses_dispositions_adaptation_due_2024_eco_finances_environnement
• Aon, ‘Other People’s Money: Attacks on Litigation Funding and Consequences for Lawyers’, in 2024 Law Firm Symposium, Aon. URL: https://www.aon.com/getmedia/f77b984b-50be-4f81-8eb1-6be64c170408/Panel-5-2024-Law-Firm-Symposium-Symposium-Litigation-Funding.pdf
• Sara Merken, ‘US litigation funding in “state of flux” as deal commitments dip, says report’, Reuters, 27 March 2024. URL: https://www.reuters.com/legal/transactional/us-litigation-funding-state-flux-deal-commitments-dip-says-report-2024-03-27/
• Civil Justice Council, Review of Litigation Funding: Final Report, 2 June 2025. URL: https://www.judiciary.uk/wp-content/uploads/2025/06/CJC-Review-of-Litigation-Funding-Final-Report.pdf
• Cour of Appeal of Versailles, 1st June 2006
• Conseil national des barreaux, Resolution on the financing of trials by third parties, 20-21 November 2015
• European Parliament, Resolution of 13 September 2022
• ‘Litigation Finance, an advantageous asset class for investors’ De Beauchef de Servigny, (2021), Décideurs Magazine. URL: https://www.decideurs-magazine.com/patrimoine-am/53045-le-litigation-finance-une-classe-d-actifs-avantageuse-pour-les-investisseurs.html
• Litigation Funding Investment Market: Analyzing Regional Variations and Trends, LinkedIn, published by Data Intelo, 26 April 2025. URL: https://www.linkedin.com/pulse/litigation-funding-investment-market-analyzing-gv4oe/
• English Court of Appeal judgment: Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144. URL: https://www.bailii.org/ew/cases/EWCA/Civ/2016/1144.html
• Litigation finance: profitable and decorrelated, 12 September 2023, with contributions from IVO Capital Partners. URL: https://www.ivocapital.com/actualites/articles/financement-de-contentieux-rentable-et-decorrelant-funds-aout-2023
• Stewarts Law, Litigation Funding and Insurance. URL: https://www.stewartslaw.com/expertise/litigation-costs-and-funding/litigation-funding-and-insurance/
• Howden Group, Legal Expenses Insurance and Litigation Funding. URL: https://www.howdengroup.com/uk-en/cover/legal-expenses-insurance-and-litigation-funding
• Michel Ferrand, “Opening up of class action, a proposal under discussion”. URL: https://www.linkedin.com/pulse/opening-up-class-action-proposal-under-discussion-michel-ferrand/?trackingId=YAWDoBieT%2BSTMlmWzvoVLw%3D%3D

APPENDIX:

Article 16 of the DDADUE Act

C.-1. Group actions shall be brought by associations approved for this purpose. Approval may be granted by the administrative authority responsible for issuing it to any duly registered non-profit association that meets the following conditions:

1° On the date it submits its application for approval, it can prove that it has been effectively and publicly active for twelve consecutive months in the defence of interests that have been adversely affected;

2° Its statutory purpose includes the defence of interests that have been adversely affected;

3° On the date its application for approval is submitted, it is not the subject of collective proceedings under Book VI of the French Commercial Code;

4° It is independent and is not influenced by persons, other than those whose interests it defends, who have an economic interest in the bringing of a group action. To this end, it has adopted written procedures for preventing and managing conflicts of interest;

5° It makes available to the public, by any appropriate means, information on its statutory purpose, its activities, the main sources of its funding and its organisation.

Approval may be withdrawn by the administrative authority responsible for issuing it if it finds that one of the conditions set out in this 1 is no longer met.

The list of approved associations shall be made available to the public under conditions laid down by decree.

Group actions aimed solely at putting an end to the breach may also be brought by non-profit associations that have been duly registered for at least two years and can prove that they have been effectively and publicly active for twenty-four consecutive months, and whose statutory purpose includes the defence of interests that have been adversely affected.

Group action may be brought by representative trade union organisations, within the meaning of Articles L. 2122-1, L. 2122-5 or L. 2122-9 of the Labour Code or Article L. 221-1 of the General Civil Service Code, and by representative trade union organisations of the judiciary:

a) In the fight against discrimination ;

b) With regard to the protection of personal data;

c) Or when it seeks the cessation of a breach by an employer or compensation for damage caused by this breach to several persons placed under the authority of this employer.

2. Group action may be brought by representative general trade union organisations of farmers and organisations of fishermen and seafarers meeting the conditions laid down in 1 of this C when it seeks the cessation of a breach or the reparation of damage caused by this breach to several of their members.

3. Group actions may also be brought by qualified entities proving their inclusion on the list published in the Official Journal of the European Union pursuant to Article 5 of Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions to protect the collective interests of consumers and repealing Directive 2009/22/EC with a view to bringing about the cessation or prohibition of conduct unlawful under the provisions of European Union law referred to in Annex I to that Directive. These qualified entities may also bring an action before the courts for compensation for damage suffered, under the conditions set out in III of this article.

4. The Public Prosecutor’s Office may be the principal party in the group action for an end to the breach.

It may also intervene as a joint party in any group action.