Litigation funding · PI
PI insurance and litigation funder arrangements — how they interact
Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Published 14 July 2026
Third-party litigation funding is now well-established in UK commercial litigation. When a professional firm faces a claim funded by a third-party funder, or when the firm's own claims involve funder arrangements, specific PI considerations apply. This page maps the interactions.
The litigation-funding landscape
- Third-party funders provide capital to fund claim costs in exchange for a share of the successful outcome.
- Association of Litigation Funders (ALF) operates a voluntary code of conduct.
- Regulatory position — litigation funding sits outside FCA scope in most cases.
- Common structures. Non-recourse funding, joint control, LSC-type arrangements.
- ATE insurance typically works alongside funding for adverse-costs protection.
When PI meets litigation funding
- Claim funded by a third-party funder against a professional firm. The funder provides capital for the claimant's legal costs; the professional firm defends via PI.
- Firm's own claim funded. Where the professional firm is the claimant, funder involvement is procedural for the underlying claim.
- Advisor to a funder or funded party. Where the firm advises on funding arrangements, PI covers advisory activity.
- Claims about funding-arrangement advice. Where the firm advised on structuring a funding deal, defective advice may generate PI claims.
Adverse-costs orders and defendants
- Funders typically responsible for adverse costs under standard funding agreements.
- ATE insurance often covers the funder's adverse-costs exposure.
- Professional firm as defendant is not typically funder-involved unless the firm is the claimant.
- Where the funder is the effective claimant, defence firm may face challenging opponent resources.
PI cover for professional firms advising on funding
- Standard PI covers civil liability from advisory activity including on funding arrangements.
- Some wordings restrict or sub-limit funding-arrangement advice — check specifically.
- Advice to a funder specifically may attract different treatment than advice to a funded party.
- Cross-border funding arrangements attract territorial-scope considerations.
Common claim triggers
- Funding-arrangement advice defective. Client suffers loss from a poorly-structured funding deal.
- Missed regulatory requirement. Funding arrangement inadvertently triggers FCA-regulated activity.
- Enforcement issues. Funding award defective.
- Conflict-of-interest issues. Firm advises on funding where undisclosed conflict.
- ATE-adjacent errors. Where the professional firm advises on ATE cover interaction.
Practical considerations
- For firms doing material funding-arrangement advisory work, disclose specifically at PI renewal.
- Confirm the wording covers funding-arrangement scope.
- Consider whether ATE-adjacent activity is covered.
- Cross-border funding needs territorial-scope confirmation.
- Where the firm participates in complex funding arrangements as a party (not adviser), consider whether separate cover is needed.
Frequently asked
Does my PI cover me if I advise a client on litigation funding?
Standard PI typically covers advisory activity including on funding arrangements. Some wordings restrict specific funding-related advice; check at inception.
What if my client is sued by a funded claimant?
Standard defence process, but the funder's involvement changes the counterparty. Funders typically have more sophisticated legal resources than individual claimants. Defence may be longer and higher-cost.
Can the funder pursue me directly if the underlying claim succeeds?
In UK litigation, funders typically operate through the funded party rather than pursuing separately. Assignment of claim to a funder can happen in specific structures — check the arrangement.
Does PI cover the additional costs of defending a funder-backed claim?
Yes typically. Standard defence-cost cover applies. Higher-quality opposition legal representation may increase defence costs but doesn't change PI response.
What is ATE insurance and how does it interact with PI?
After-the-Event insurance covers a party's exposure to adverse costs orders in litigation. Distinct from PI. Where the firm advises on ATE structuring, PI covers the advisory activity.
Are litigation funders regulated?
Not by the FCA directly. Voluntary ALF Code of Conduct applies. Some funding arrangements may trigger FCA-regulated activity depending on structure; specialist legal advice essential.
Can I use litigation funding for my own firm's claim?
Yes potentially. Funding for professional firms bringing their own claims is available. Discuss with legal advisor and specialist broker — funding of firm's own PI-related claim is a specific scenario.
Does my PI premium change if I do funding-adjacent work?
Depends on volume and complexity. Insurers ask specifically at renewal. Material funding-advisory activity may attract underwriter attention. Straightforward advisory work usually neutral.