Litigation and Settlement under the English and American Rules: Theory and Evidence

James Hughes and Edward Snyder

Journal of Law and Economics, 1995, vol. 38, issue 1, 225-50

Abstract: In contrast to the American rule, whereby each party bears its own costs, the English rule requires losers at trial to pay the winner's legal fees, up to a reasonable limit. We develop six hypotheses regarding how these two cost-allocation rules might affect settlements and litigated outcomes through changes in (1) the selection of cases reaching the settle-versus-litigate stage and (2) behavior thereafter. Using data from Florida, which applied the English rule to medical malpractice claims during the period 1980-85, we examine the rules' effects on the probability of plaintiffs' winning at trial, jury awards, and out-of-court settlements. The English rule increased plaintiff success rates at trial, average jury awards, and out-of-court settlements. Our interpretation of these findings emphasizes that the overall quality of the claims reaching the settle-versus-litigate stage must improve to generate the combination of effects observed. Copyright 1995 by the University of Chicago.

Date: 1995
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