Insurance and third-party litigation funding in Australia: The desirability or otherwise of a common regulatory framework?

Insurance and third-party litigation funding (TPLF) are increasingly the subject of comparison, particularly regarding liability insurance and legal expenses insurance. Given the common function of risk transfer in civil litigation and the similarities in structure evident from the triangular relationships – that is between client/insured in legal expenses funding and lawyer and insurer/funder in litigation funding – this is not surprising. In a law reform context and elsewhere, however, whether insurers and litigation funders should be subject to a similar, or the same, regulatory regime is a logical point of inquiry and one that merits greater consideration. This note addresses briefly the current regulatory environment of insurers and of third-party litigation funders and considers the evolving role of the courts in relation to litigation funding to protect its processes. In light of recent appellate court decisions evidencing growing willingness to bring flexibility and nuance to oversight and supervisory roles when TPLF is involved, it is suggested in conclusion that the extension of the regulatory regime applicable to insurers to cover commercial litigation funding would be premature at this time. While such extension is superficially attractive and would resolve, on the face of it, a seemingly inconsistent regulatory approach there is little or no evidence of a proliferation of litigation being fuelled by TPLF, through class actions or otherwise. Accordingly, it is argued that the courts should continue to define the boundaries of behaviour and disclosure in the triangular contractual relationship between litigation funder, funded client/insured and legal representative(s) and that any further legislative intervention should be deferred – at least at this stage of the evolution of TPLF in Australia.