Allianz, the German insurance giant, has become the first mainstream institution to enter the UK’s fledgling market for third party litigation funding.

It is sending Christian Stuerwald, a senior member of its Munich litigation funding group, to London to launch a new dedicated fund to invest in commercial disputes in British courts.

Mr Stuerwald is expected to arrive in November. The amount of money has to invest has not been fixed as each dispute will be assessed on a case by case basis.

Litigation funding allows outside investors to contribute some, or all, of a litigant’s legal costs in return for a share of the damages if the case is successful.

Since UK courts traditionally force the losing side in a case to pay the winner’s costs, it also allows litigants to hedge against their potential exposure if their claim is unsuccessful.

Until now, the market has been dominated by small, specialist firms. These include London-based IM Litigation Funding, which is backing a £90 million High Court negligence claim against Moore Stephens, a firm of accountants, over its role in the collapse of a former audit client.

The claim, which has not yet gone to court, is thought to the largest case in UK legal history involving third party funding. Moore Stephens denies the allegations.

Allianz’s arrival is the latest in a series of events that suggest litigation funding is poised to enter the mainstream.

In the summer, Herbert Smith, one of London’s top litigation law firms, created a working group to explore the issue.

Sonia Leydecker, head of dispute resolution, said: “Third party litigation funding is now an established factor in the UK market and we expect it to grow.

“Litigation can be expensive and carries risks and clients want to know what options are available to offset this. Large firms cannot simply ignore this important change in the market,” she said.

The market was given a further boost by a recent case at the Court of Appeal that decided third party funding was acceptable under UK law, providing the external investors remain passive and do not seek to influence the outcome of the dispute.

In another related development, two former investment bankers have set up a business to advise litigants on how to navigate the funding market. Calunius Capital, which claims to be the only FSA-regulated business of its kind in the UK, acts as an independent intermediary between institutions looking to invest in UK disputes and claimants seeking funding.

Co-founder Mark Wells said Calunius is paid by the claimant only to avoid conflicts of interest. It offers various fee arrangements including taking a share of any money borrowed to fund a case although Mr Wells stressed that his firm would have no stake in the eventual winnings if successful.

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