LITIGATION AND SETTLEMENT UNDER THE ENGLISH AND AMERICAN RULES - THEORY AND EVIDENCE

In contrast to the American rule, whereby each party bears its own cos ts, the English rule requires losers at trial to pay the winner's lega l fees, up to a reasonable limit. We develop six hypotheses regarding how these two cost-allocation rules might affect settlements and litig ated outcomes through changes in (i) the selection of cases reaching t he settle-versus-litigate stage and (ii) behavior thereafter, Using da ta from Florida, which applied the English rule to medical malpractice claims during the period 1980-85, we examine the rules' effects on th e 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 inte rpretation of these findings emphasizes that the overall quality of th e claims reaching the settle-versus-litigate stage must improve to gen erate the combination of effects observed.