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Insurable Interests - Insights on Insurance Law

U.S. Chamber seeks new federal rule requiring disclosure of third-party litigation funding arrangements

Business dealRemember what “champerty” means? If you do, you either: a) have recently taken a bar exam; or b) possess powers of recall that surpass those of mere mortals. Black’s Law Dictionary (10th Ed.) defines “champerty” as “an agreement between an officious intermeddler in a lawsuit and a litigant by which the intermeddler helps pursue the litigant’s claim as consideration for receiving part of any judgment proceeds.” And why, you may ask, does this matter to you or the insurance industry?

Champerty, a centuries-old doctrine, is relevant once again because of the rise of third-party litigation financing. You know how this works today—one party buys an interest in another’s lawsuit, providing the money to fund the fight. Historically, an outsider’s involvement in a lawsuit was a no-no, as the Black’s definition of “champerty” implies. But the hard line has softened considerably over the years and the third-party litigation finance industry has stepped into the void.

The U.S. Chamber Institute for Legal Reform (U.S. Chamber) wants to nip this trend in the bud or, at least, to bring third-party litigation funding arrangements out of the “shadows”. While the U.S. Chamber seems to recognize that an outright ban on third-party litigation funding is not feasible, earlier this month, it, along with a host of other organizations, filed a letter with the Administrative Office of the United States Courts seeking an amendment to the Federal Rules of Civil Procedure that would require the disclosure of third-party litigation funding contracts in any federal lawsuit.

The U.S. Chamber’s letter outlines the recent spike in third-party litigation funding, citing sources suggesting that as much as $1 billion is invested annually in these arrangements. And, while in the past these contracts may have been directly with plaintiffs themselves, law firms are now getting in on the act, including a significant number of Am Law 100 firms. The insurance industry should keep a keen eye on these developments, as readily available litigation war chests will undoubtedly mean more litigation.

Not everyone agrees that third-party litigation financing is evil or that the arrangements need to be disclosed. The litigation financiers themselves, of course, take issue with the proposal, contending that the U.S. Chamber and its cronies are merely looking to keep the litigation playing field tilted in favor of the rich and the powerful.

Whether or not the U.S. Chamber’s proposed amendment ultimately passes, the presence of third-party litigation funding in our legal system seems here to stay. The “officious intermeddlers” of yore are the venture capitalists of today and though champerty survives, it is unlikely to ever regain the vitality it once had in its youth. Stay tuned for further developments.

June 06, 2017

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