UK Law and Practice Contributed by: Daniel Robin and Chloe Franklin, SDV Fenchurch
ronmental claims and high-value property damage disputes. Insurers most frequently fund defence costs where policies expressly provide that cover, including liabil- ity, professional indemnity, D&O, cyber and certain financial institutions policies. The scope of the obli- gation depends on policy wording, including consent provisions, panel solicitor requirements, reasonable- ness controls and whether defence costs erode or sit in addition to the limit. Coverage disputes often arise where insurers advance defence costs under a reservation of rights. That can preserve the insured’s ability to defend the underlying claim while leaving open issues such as exclusions, aggregation, allocation and policy limits. 5.2 Shifting Risk Landscape Technology, AI and regulatory change are creating claims that cut across traditional policy categories. A single event may engage cyber, professional indem- nity, D&O, product liability and regulatory cover. There is also the risk that claims arising out of a profes- sional’s use of AI, could fall within widely drafted cyber exclusions. There have been a number of cases before the English courts reminding professionals that while the use of AI as a tool is acceptable, professionals remain respon- sible and are unable to delegate that responsibility to AI (eg, a barrister who relies on AI to write their sub- missions, remains responsible if that AI hallucinates a precedent that does not exist). The shifting nature and regulatory focus encourages insurers to become involved early in the defence, particularly where regulatory reporting, reputational issues, urgent investigation and privilege need to be managed alongside coverage, and the failure to do so could lead to further claims. 5.3 Defence Costs and Litigation Complexity Defence costs are increasing because claims are more document-heavy, expert-led, multi-party, cross-bor- der and strategically sensitive. Construction, cyber, financial lines and regulatory claims are particularly expensive to defend.
Disputes often focus on whether costs were reason- able, whether insurer consent was obtained, whether panel firms should be used and how costs should be allocated between covered and uncovered claims. 5.4 Cost Risk Management and Funding Solutions Cost risk may be managed through before-the-event insurance, after-the-event insurance, third-party fund- ing, conditional fee arrangements, damages-based agreements where available, Part 36 offers, mediation and early neutral evaluation. In coverage disputes, the economics are important. Strong claims may still be difficult to pursue if the value is modest compared with disclosure, expert evidence and trial costs. 5.5 AI-Driven Claims Volumes and Complaints AI-assisted claims and complaints are an emerging issue rather than an established category of insurance litigation. The likely impact is increased volume and more standardised or template complaints. The practical challenge for insureds and insurers is triage: distinguishing claims that require substantive defence from those that can be resolved through com- plaints processes, early settlement or narrow factual enquiries. 6. Third-Party Claims and Defence Trends 6.1 Third-Party Claims and Direct Actions Direct actions against insurers are available in cer- tain circumstances, most notably where the insured is insolvent and rights may be pursued against the insurer under the Third Parties (Rights against Insur- ers) Act 2010. These claims are most commonly seen in liability insurance contexts, including profession- al indemnity, public liability, employers’ liability and claims involving insolvent insureds. Direct actions do not remove the need to resolve cov- erage issues. The claimant will usually stand in the shoes of the insured and may face the same policy
255 I NSURANCE L I T IGATI O N 2026
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