Third-party litigation funding has become a controversial topic in the U.S. court system over the past decade, but experts say it has a surprising history that dates back to medieval England.
This practice was once prohibited by a common law principle known as “chanparty” or “maintenance,” which prohibited parties unrelated to a litigation from providing funds in exchange for a financial interest in the outcome of the litigation.
Third-party litigation funding as we know it began in Australia about 30 years ago and has since spread to other common law countries such as the United States and Britain, said James Whittle, vice president and general counsel for the Washington-based Property Casualty Insurers Association of America.
“The ideas of champarties and maintenance are no different than what we deal with today, and both are prohibited under common law. You can find references to them going all the way back to the 1400s,” he said.
Scott M. Seaman, an insurance company lawyer with the law firm Hinshaw & Culbertson, said litigation funding has gained momentum because many states have repealed or significantly limited Champati laws over the past two decades.
He said litigation funding was unlikely to slow down because “a return to the Chancery principle is not expected.”
As long as regulations remain unchanged and litigation funders are happy with the returns on their investments, they will continue to fund litigation, he said.
