Litigation risk in 2026: funding, AI and global disruption

Drawing on insights from our research with The Lawyer, we explore some of the issues raised in the survey and also additional issues which are likely to arise and impact the course of litigation during 2026, and beyond.

Litigation funding 

The term ‘litigation funding’ is typically associated with group actions and third-party funders. This year is expected to be critical in terms of stabilisation for third-party litigation funding regulation in the UK.

Following the controversial PACCAR judgment delivered by the Supreme Court in July 2023, which ruled that third-party litigation funding agreements are damages-based agreements and therefore unenforceable, the Civil Justice Council (CJC) published their review of the litigation funding industry in June 2025. The CJC’s review included two primary recommendations: the reversal of PACCAR and the introduction of legislation on funding.

Following the CJC’s recommendations, the government has announced its intention to reverse PACCAR in 2026 and introduce legislation to regulate litigation funding in the UK. The government has stated that it will legislate on this matter “when parliamentary time allows” and it will be interesting to see whether the legislation is drafted in such a way that impacts other litigation funding option regulations such a damage-based agreements. 

We can therefore expect to see less restriction on the availability of funding and more certainty for claimants and funders alike, resulting in more group action on the horizon for 2026. An expanded funding market may significantly improve access to justice and reduce the financial risks associated with commencing legal proceedings. 

Read more on the PACCAR judgment. 

Whilst third-party funding is an essential part of the legal landscape – facilitating access to judgment for many parties – it is not the only form of alternative funding which businesses should be alive to. The way litigation is funded should be one of the primary decisions a business has when contemplating entering into or defending litigation. Early funding considerations can be critical in assessing the strategic advantages of alternative funding such as agreeing fixed fees, risk‑sharing arrangements such as conditional fee agreements, discounted conditional fee agreements and damages‑based agreements, as well as considering insurance products designed to mitigate adverse cost risk.

Artificial intelligence 

We have recently discussed the use of AI in litigation and how we can expect to see the use of AI and the risks associated with AI increase in tandem as it becomes more pervasive in litigation. 

Our publication on the Ayinde case discusses the topical issue of “hallucination” relating to AI’s generation of fictitious cases. In the article, we drew upon the court’s emphasis on using AI platforms with caution as improper use of AI in legal proceedings may result in detrimental costs awards. 

Despite the controversies and capabilities of AI, the UK government is yet to introduce legislation regulating its use. In 2026, we can however expect to see closer scrutiny of the use of AI in the courts. In turn, this may be reflected in further guidance on the use of AI in the legal profession to ensure that those involved in litigation are maximising time and costs efficiencies by using AI but not placing over-reliance on it to an inappropriate extent.  

The Civil Justice Committee have recently published an interim report and consultation on the use of AI in the preparation of court documents. The consultation submission date is 14 April 2026 and we await the publication of the resultant report to establish what, if any, guidance and rules are proposed as an outcome of the profession’s views.

Interestingly, towards the latter end of 2025, highly publicised discussion arose for the first time around the suspected use of AI in the judiciary which arose in light of the Sandie Peggie v NHS Fife Health Board case. Numerous amendments to the 300-page judgment by EJ Kemp have been made on the basis of alleged hallucinations and fabricated legal quotes from historic judgments which did not in fact exist. It will be interesting to see how AI will be used and monitored in the judiciary in 2026 following this case. 

Outside the use of AI in the litigation process, there is a general consensus amongst our clients regarding one outcome from the availability of Open-AI, such a ChatGPT and Gemini, being an increase in the volume of claims consumers and employees are utilising AI to generate. 

Geopolitical instability

Geopolitical instability is now a material driver of commercial disputes, particularly those arising from supply‑chain disruption. Armed conflict, sanctions regimes, trade restrictions and political intervention in key transit routes are increasingly causing sudden non‑performance of supply and logistics contracts. This is likely to lead to a rise in disputes involving force majeure, illegality, termination rights and damages, often across multiple jurisdictions. 

Courts have generally adopted a strict, contract‑based approach: geopolitical disruption does not automatically excuse performance, and increased cost, delay or commercial difficulty will rarely be sufficient unless expressly provided for in the contract. As a result, many disputes now involve parallel claims between counterparties, suppliers and insurers.

Insurance cover for supply‑chain disruption remains limited and is a frequent source of dispute. Many insureds assume that business interruption or similar policies will respond to geopolitical disruption. 

Purely political or regulatory events, such as sanctions, port closures or blocked shipping lanes, often fall outside cover. More specialist products, such as contingent business interruption, marine and cargo insurance, trade credit insurance or political risk insurance, may respond in certain circumstances, but coverage is narrowly defined and heavily dependent on policy wording. 

In practice, losses caused by widespread geopolitical events frequently sit in a gap between contractual risk allocation and insured risk.

War, sanctions and political risk exclusions are emerging as a key battleground in insurance litigation. 

Insurers increasingly rely on these exclusions to resist claims arising from conflict‑related disruption, while policyholders argue for narrow interpretation, particularly where losses are indirect or arise from cyber activity, regulatory action or proxy conflict. 

Courts tend to scrutinise exclusion clauses closely and can construe ambiguity against insurers, as the recent COVID-related business interruption insurance claims demonstrated. 

Against this backdrop, businesses are advised to review both contractual force majeure provisions and insurance programmes proactively, ensuring that geopolitical risk is clearly allocated and, where possible, affirmatively insured rather than assumed.

Get more insight

Completed in collaboration with The Lawyer, our new report surveyed over 80 businesses to identify the priorities defining the year ahead for in‑house legal teams. 

We look at the general appetite for litigation – and what may prevent it – as well as how GCs are handling alternative funding, the rise of AI, and geopolitical influences. 

As in-house teams face increasing pressure to manage risk, control costs, and limit exposure, we also explore the vital role external dispute resolution experts can play.

Read it now: The Leading Litigator Report | Irwin Mitchell