Reining In Abusive Lawsuits While Delivering Greater Justice
December 3, 2008
Marie Gryphon, Senior Fellow at the Manhattan Institute’s Center for Legal Policy has just published an important new report that examines the impact a “loser pays” rule would have on America’s tort system. Under a “loser pays” rule, the loser in a lawsuit must reimburse the winner’s legal expenses, including attorneys’ fees. The report should be required reading for everyone concerned about the high cost abusive litigation imposes on the U.S. economy. Among the highlights:
- Abusive litigation imposes huge costs on our economy. Tort costs in the U.S. as a percentage of GDP “are far higher than those in the rest of the developed world – double the cost in Germany and more than three times the cost in France or the United Kingdom.” Direct tort costs “reached $247 billion in 2006, or $825 per person in the United States” – an annual tort tax of $3,300 for a family of four.
- Only the U.S. punishes winners in lawsuits. “Virtually every other civil justice system in the world has a loser pays rule… for attorneys’ fees” including Canada, the United Kingdom, Germany, France and Australia.
- “Winner pays” encourages abusive lawsuits. “The American rule makes the civil justice system as a whole unnecessarily costly by encouraging the filing of dubious lawsuits, which defendants must either settle quickly or defend against at significant cost. Such low-merit legal cases clog the American legal system and raise the cost of goods and services to consumers by forcing businesses that are sued to cover their legal expenses by raising prices.”
- The current system benefits lawyers, not plaintiffs. “The fees and expenses incurred by lawyers on both sides of a lawsuit are almost as costly as transfer payments to plaintiffs claiming injury.” Contingency fees and litigation costs paid by the plaintiff “frequently soak up 40 percent or more of any judgment or settlement.”
- A loser pays rule in the U.S. would cut down on abusive lawsuits and deliver greater justice to plaintiffs. “Almost every economist who has studied loser pays predicts that it would, if adopted, reduce the number of low-merit lawsuits. A loser-pays rule would encourage business owners and other potential defendants to try harder to comply with the law. Doing so should produce fewer injuries.