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

  • Hughes, James W
  • Snyder, Edward A

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.

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Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 38 (1995)
Issue (Month): 1 (April)
Pages: 225-50

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Handle: RePEc:ucp:jlawec:v:38:y:1995:i:1:p:225-50
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