Third-party financing trend has deep roots
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Third-party litigation financing has become a controversial issue in the U.S. court system over the past decade, but experts say it has a surprising history dating back to medieval England.
The practice was once prohibited by doctrines in common law known as “champerty” or “maintenance,” which barred strangers to a lawsuit from providing funding in exchange for a financial interest in the outcome of the case.
James Whittle, vice president and counsel for the Washington-based American Property Casualty Insurance Association, said third-party litigation funding as we know it began roughly 30 years ago in Australia before moving to other countries that practice common law, such as the U.S. and the United Kingdom.
“The idea of champerty and maintenance is no different from what we’re dealing with today, and those are both forbidden in common law. You can find citations to them from as far back as the 1400s,” he said.
Scott M. Seaman, an insurer-side attorney at Hinshaw & Culbertson LLC, said litigation funding has gained traction as many states have abandoned or substantially limited their champerty laws over the past two decades.
He said the momentum of litigation funding is unlikely to slow because “a return to the champerty doctrine is not expected.”
Without regulatory change and as long as litigation funders are satisfied with their return on investment, they will continue to fund litigation, he said.
