‘Loser Pays’ — A System that Works All Around the World

By December 16, 2008Briefly Legal

Marie Gryphon of the Manhattan Institute is a guest on this week’s NAM-sponsored radio program, “America’s Business with Mike Hambrick,” discussing her new paper, “Greater Justice, Lower Cost: How a ‘Loser Pays’ Rule Would Improve the American Legal System.”

From the executive summary:

Loser pays, sometimes called the “English rule” but actually, in essence, the rule in place in the rest of the world, refers to the policy of reimbursement by the parties who lose in litigation of the winners’ legal expenses, including attorneys’ fees. This study argues that loser pays could be an important part of a larger effort to reduce litigation costs, better compensate prevailing litigants, and better align tort law with its goal of deterring socially harmful conduct. A loser-pays rule would discourage meritless lawsuits, but because any such rule should also ensure plaintiffs of modest means but strong legal cases access to justice, our proposal calls for:

  1. A robust litigation insurance industry similar to those that now exist in other loser-pays countries; and
  2. A cap on recoverable fees to eliminate the incentive that large litigants might have to attempt to “buy a verdict” under loser pays.

This study explores in depth how a loser-pays rule would change litigation in America. It includes key findings about the likely effects of loser-pays reform and evaluates previous experiments with loser pays in America.

We’ve uploaded Marie’s interview into a separate soundfile, which you can listen to or download here.

New to us was the argument that the system has already worked in the United States in two states, Alaska and Florida:

In Alaska, which has always had a loser-pays rule, tort suits constitute only 5 percent of all civil legal matters—half the national average.

Between 1980 and 1985, Florida adopted a loser-pays rule that applied exclusively to medical-malpractice cases. This experiment was imperfect, drew criticism, and was ultimately dropped; but in significant respects, the Florida loser-pays rule seems to have worked to weed out weaker cases and facilitate case disposition: the rate at which medical-malpractice lawsuits were dropped after initial discovery rose from 44 percent to 54 percent of all such filings, and the percentage that proceeded to trial (instead of being dropped or settled) was half of what it had been under the American rule.

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