Insurer and Civil Justice Council push new code of conduct for fledgling industry.

The Claims Justice Council and Allianz have led the charge to regulate third party funding, the fledgling industry that sees claims backed by third parties unconnected with the claimant or defendant.

Allianz has co-written a draft code of conduct for third party funders. It claimed to be the only UK insurer to currently offer third party funding, but said other insurers were considering it. Allianz has had a funding business in Germany since 2002 and opened a UK office last November.

In recent years an increasing number of parties, such as hedge funds, have been providing millions of pounds to help pursue cases that might otherwise have failed. These third parties take a percentage of the claim award.

Christian Stuerwald, head of Allianz Litigation Funding, said: “There is no regulation yet but we have a feeling there will be, so it’s a bit tricky. We need to be mind readers about what the regulations will be like before they actually exist. But we think because we’re involved in the process that we know where this is going, and that it will be a reasonable document that won’t stifle the market.”

Allianz provides levels of third-party funding down to £100,000, which is considered the lower end of the market.

Stuerwald said: “We have the support of the government at the moment because we contribute to access to justice. I don’t think it would be very credible if we said we only provide access to justice for larger cases. We’re also unsure whether there are enough large cases that are suitable to third-party funding. No one knows in these early days how big the market in the £10m plus cases actually is.”

The code of conduct has been spearheaded by the Civil Justice Council (CJC). Stuerwald drafted the code with representatives from Harbour Funding and Claims Funding International.

They presented the first draft last week to an executive group organised by the CJC. The executive group includes third-party funder Brian Raincock, along with representatives from the FSA, the Law Society, the Solicitors Regulation Authority, the claims management regulator and a QC.

CJC chief executive Robert Musgrove said: “A minimum code of standards is needed for a court to refer to when it wishes to test whether or not a commercial or third-party funding agreement is legitimate.

“The insurance industry is interested in both sides as some of them want to be funders because they’ve got a lot of money and can invest in litigation. But they also might represent liability insurers on the other side. It’s for the protection of the consumer, but also to facilitate the establishment of this market. But it would just take the wrong case by the wrong funder to collapse the system.”

The groups plan to work on a second draft during the summer.