UPDATE 1-Litigation and its financing on the rise -Lloyd's

(Adds interview with Lloyd's of London chairman)

By Lilla Zuill

NEW YORK, Nov 18 (Reuters) - Investors seeing a chance to profit from a surge in corporate lawsuits are expected to increasingly provide financing for claims in both the United States and Europe, according to a report by Lloyd's of London [LOL.UL].

Third party funding of suits has been available since the 1990s in Germany, for a similar period in the United States, and has emerged in the United Kingdom more recently, Lloyds's said in the report made public on Tuesday.

Laws in some U.S. states regulate who make take a financial interest in a case, limiting the jurisdictions in which third parties can fund litigation.

It is another wrinkle in the increasingly complex legal risks facing companies.

"Boards of companies have to be aware well in advance. It is no use crying over spilt milk after the fact," Lloyd's Chairman Peter Levene, said in an interview in New York.

Lloyd's, as the world's oldest and biggest insurance market, tracks business developments that can affect insurers, including the legal landscape. Insurers sell policies to corporations to cover costs associated with lawsuits, including coverage for directors and officers.

"Litigation, and the fear of it, is strangling innovation," said Levene, who expects class actions on both sides of the Atlantic to increase in coming years.

Business is expected to spend more time defending against claims as shareholders disgruntled by large financial losses target firms and their senior executives with class action lawsuits.

According to Lloyd's report, these factors will only fuel third parties seeking to fund litigation.

"Current economic conditions may actually accelerate the growth ... with investors keen to find new opportunities for investing capital not correlated with volatile financial market performance," said Lloyd's.

Another area companies should watch closely as they assess legal risks, according to the Lloyd's report, is the ability of claimants to pursue claims in jurisdictions that have a track record for ruling in favor of plaintiffs and awarding higher awards than courts in other regions.

This so-called "forum shopping" has long been common in the United States, but is now more prevalent in Europe, according to Lloyd's.

"The risk of being sued in the U.S. for companies based elsewhere is high, even where the details of the claim have little apparent connection to that jurisdiction," Lloyd's said. (Reporting by Lilla Zuill; editing by Andre Grenon and Tim Dobbyn)