The Rise of Third-party Litigation Funding in the Nordics

Third-party litigation funding refers to an agreement where a third-party covers the legal costs of claimants in exchange for a share in the event of a successful outcome in the litigation. This allows claimants to pursue litigation without bearing the risk of the legal costs.

 

The use of third-party litigation funding is not well-established in the Nordics but is emerging with both local and global funders present in the market. On the 21^st of March 2025, the European Commission published a report mapping the legislation, practice and the debate on Third-party litigation to prepare for future policy decisions. In light of this, policyholders in the Nordics should also consider the effects of third-party litigation funding in relation to their Professional Indemnity and Directors’ and Officers’ Liability coverage.

 

Third-party litigation funders are sophisticated, commercially driven entities that carefully evaluate the merits of each case and closely monitor proceedings. Their involvement can result in more thorough pre-trial preparation and a greater willingness to appeal adverse decisions, both of which can increase defence costs and prolong the litigation process. The resources available for legal costs and expert witnesses may also increase the complexity of the claim and arguments presented, driving an increase in the costs to defend such cases.

 

Historically, the “loser pays” principle in the Nordic legal tradition, where the unsuccessful party must cover the winner’s legal costs, has discouraged speculative and frivolous claims. However, with the backing of litigation funders, claimants may be more willing to take on risks they would otherwise avoid, knowing their financial exposure is limited. This can lead to more frequent and complex disputes, requiring defendants to prepare for longer and potentially more expensive litigation.

 

A further challenge for defendants is the lack of transparency around litigation funding arrangements. As third-party litigation funding is largely unregulated in the Nordic countries, there is no general obligation for the claimants to disclose an agreement. This can make it difficult for defendants to assess the motivations behind the litigation, evaluate the claimant’s interest to settle, or understand the true extent of financial resources backing the claim.

 

Moreover, litigation funders may have different risk appetites and return expectations than claimants, which can affect whether, when, and at what terms a case is settled. There is a risk that funders may push for higher settlements to maximize their returns, even when a claimant might otherwise be willing to settle at lower amounts to resolve the dispute quickly or due to other commercial considerations.

 

Third-party litigation funding highlights the need for sufficient Professional Indemnity and Directors’ and Officer’s Liability insurance coverage, to manage complex litigation with increased defence costs and claimed amounts. With a proactive approach to claims handling and early identification of third-party litigation funding, the risks associated with funded claims can be managed.

 

For further information on how Zurich Nordic can help your company build resilience, please contact Otto Saviluoto, Financial Lines and Liability Claims Handler.