Insurers and law firms in the UK are bracing for a surge in commercial class actions as the country’s judicial system becomes more amenable to their use.

Polly Sayers, (above) associate (RFL) & insurance market analyst at HCR Law told Emerging Risks that whilst in the past class actions have been a relative rarity in the English and Welsh courts the situation is changing.

“The growth in group litigation is one of the biggest emerging risks for insurers at present,” she explained. “There is a concern as to how these class actions will play out.

“In the past the judiciary has not been keen to enetrtauin such actions, but this is changing and we are seeing a different court system which is giving encouragement to the plaintiff lawyers.”

Sayers said there has already been a number of cases and it is expected that those numbers will grow.

“The Jonson and Jonson case which was heard in the USA is now being brought to the UK and we have seen the first class actions around the use and impact of PFAS, or what have been descried as forever chemicals, with a case brought against a PFAS manufacture. The Three Rivers action on environmental damage is another example.”

The increased potential for class actions has also attracted companies which will fund the actions for a percentage of any awards.

“Litigation funding companies are entering the market and are there to support class actions where the claimants do not have the funds available to fund the case,” Sayers continued. “They are coming from the USA, Canada and Australia and they create new challenges for defence solicitors and insurers.

“It is a very different situations for insurers when they are negotiating with a single claimant than potentially thousands, all of which may have a different view on how they would like to see the case handled.”

Sayers said that the perceived view that it is the US tort system which will drive similar cases to the US is  now changing.

“While we have used the US as a barometer it is actually an outlier. The UKL Supreme Court is committed to being common law consistent and will look to Australia, New Zealand and Canada

“Australia will more likely see new litigation issues coming from the USA. The Australina courts are conservative, and they are not prone to rash decisions. The bar remains high so if they make a decision on a liability or class actions then it is pause for thought for the UK.

For The financial services sector there is also a growing risk around the use of artificial intelligence.

The UK’s financial services regulator the Financial Services Authority is examining the appropriate use of AI, and it presents the possibility that directors and officers could be faced with actions if the AI system does not deliver.

It comes after action was taken against the directors of a credit rating company which implemented a new AI driven system to deliver personal credit ratings. However, it was found that the AI included bias around gender, race and pe4rceived social class which badly alerted the results.

“The FCA’s AI regulations for the financial  markets  are focused on who is responsible for the adoption and implementation of AI,” Sayers explained. “The ramifications for the senior managers have yet to be fully determined.

“It has put everyone on a high degree of alert. You need to take care when it comes to the adoption of AI into the business. The reality is that the company management has to understand the technology they are using.”