GERMANY Law and Practice Contributed by: Oliver Sieg, Helmut Katschthaler, Philipp Koch and Charlott Kujath, Noerr
5.4 Cost Risk Management and Funding Solutions Legal Expenses Insurance In the consumer segment, legal expenses insurance is widespread in Germany, but it is rarely offered for industrial or large-scale corporate losses. Third-Party Litigation Funding (TPLF) Historically, the prohibition of success-based fee arrangements for lawyers and the limited options for recourse in respect of litigation costs under German procedural law were regarded as significant structural barriers to the development of a robust litigation fund- ing market. These constraints made it more difficult to aggregate and pursue claims, particularly where individual amounts in dispute were relatively low and did not justify the cost and complexity of standalone litigation. This landscape has changed markedly in recent years. Litigation funding has gained considerable momen- tum, driven, in particular, by the introduction of the model declaratory action ( Musterfeststellungsklage ) and a series of landmark decisions by the Federal Supreme Court on the assignability of small value claims to special purpose vehicles (SPVs) which have provided legal clarity and practical pathways for bun- dling large numbers of individual claims. This has sig- nificantly improved the economics of pursuing mass litigation and collective redress, thereby making third party funding models commercially viable in practice. Against this backdrop, the Third Party Litigation Fund- ing market in Germany has recently experienced con- siderable growth. 5.5 AI-Driven Claims Volumes and Complaints AI-generated and AI-assisted claims are beginning to reshape the claims landscape, but the development is still at an early stage. Mass Claims AI tools significantly facilitate the organisation of mass claims. Automated document generation, claim screening and workflow management allow claimant representatives to prepare, file and coordinate large numbers of near-identical claims with comparative- ly moderate marginal cost. This lowers entry barri-
ers for collective redress and can result in sudden spikes in claims activity against insureds, particularly in consumer, financial services and product liability contexts. For insurers, this increases the pressure on claims handling departments, which must process and assess large volumes of structured but highly standardised submissions within tight timeframes. Complex Disputes In complex litigation, AI increasingly enables a level of factual analysis that would previously have been uneconomical, or practically impossible. Advanced tools can review vast data sets, unstructured corre- spondence and technical documentation to identify patterns, inconsistencies and evidentiary gaps. This can render cases justiciable that, due to their com- plexity or data volume, would historically never have reached the courtroom. For insureds, this raises the bar for internal documentation and compliance. For insurers, it expands the scope of potential liability scenarios and requires an upgrade of their own ana- lytical capabilities to scrutinise AI assisted allegations effectively. 6. Third-Party Claims and Defence Trends 6.1 Third-Party Claims and Direct Actions Under German law, an injured third party’s ability to bring a direct claim against the liable party’s liability insurer is, in principle, restricted to rare exceptions of compulsory liability insurance. Only in motor liability insurance is an unconditional direct claim available against the motor insurer. In other classes of com- pulsory liability insurance – eg, professional indem- nity insurance of lawyers, tax advisors or certified accountants – the availability of a direct claim against the insurer only arises in cases of a policyholder’s insolvency or unknown whereabouts. However, the insured under a liability insurance poli- cy may assign its coverage claim to the injured third party, thereby enabling the latter to have both liability and coverage determined in a single set of proceed- ings against the liability insurer. Since the injured party would then have to contend not only with potential
135 I NSURANCE L I T IGATI O N 2026
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