More On Loser Pays
December 24, 2008
I’ve had a few posts in recent weeks on the “loser pays” reform and a new report by Marie Gryphon of the Manhattan Institute promoting this idea. “Loser pays” – which is used by virtually every economic competitor of the U.S. – cuts down on frivolous lawsuits by requiring the losing side to pay the winning side’s court costs, including attorney’s fees.
Trial lawyers argue that “loser pays” reform would limit access to the courts by plaintiffs with low incomes. But, as a Wall Street Journal article pointed out yesterday, Ms. Gryphon’s report “zeroe[d] in on a long-overlooked component of the loser-pays system: insurance that covers legal fees.” In the process, she has exposed the trial bar’s main argument against “loser pays” as a canard.
Countries that use loser pays, including Germany, Canada and the U.K., allow people to purchase insurance policies to cover the cost of legal fees. That way, “if people need to file suit, they know their costs are covered – even if they lose.”
“Insurance definitely strengthens the argument for ‘loser pays,’” says Richard Nagareda, a professor at Vanderbilt Law School. Mr. Nagareda says that interest-group politics might explain the suspicion of the plaintiffs’ bar toward a loser-pays system.
Professor Nagareda is right, but the real explanation for trial bar opposition is even simpler: greed. By curtailing frivolous lawsuits, “loser pays” has proven to dramatically lower overall litigation expenses, which cuts the trial bar’s rake. And that’s a reform Trial Lawyers Inc. simply can’t stomach.