The US tort system cost $233bn in 2002, or $809 for every man, woman and child in the country, according to a recent study(1) of tort costs in the US. This reflects a 13.3% increase in US tort costs in 2002, hard on the heels of a 14.4% increase in 2001(2). It represents 2.23% of the American gross domestic product.

Why should anyone in Europe care about what Americans are paying for their tort system? One approach Europeans might take is to laugh all the way to the bank. The high cost of the US tort system has to be built into US prices, which makes US products and services less competitive than European products and services. Europeans could simply sit back, enjoy their less litigious tradition and watch the Americans sue each other. The approach some Europeans are taking is more surprising: they are adopting some of the very features of the American system that are driving US tort costs into billions.

Class actions
Increases in class actions and shareholder lawsuits – the class actions of securities litigation – were identified as two factors contributing to the burgeoning American tort bill(3). These actions, which bundle numerous claims into statewide or nationwide actions, open the door to mega damage awards. Consumer groups in Europe have advocated the adoption of similar procedures for aggregating claims both at the EU level and in individual member states.

For example, when the 1999 Green Paper asked whether the EU Directive on Products Liability should be amended to include group actions(4), consumer groups enthusiastically supported such an amendment. After reviewing all the evidence, the Commission concluded that aggregation of product liability cases was not appropriate(5).

However, individual countries such as Portugal, Austria, Greece and Italy permit aggregate actions in cases brought by consumer associations(6). Other countries, like Sweden and the Netherlands, have adopted more expansive class action procedures. Class actions recently filed in Sweden include an action by travellers against an airline, a suit by property owners charging a construction company with failure to fulfil its promise to build a safe marina, and a suit by graffiti painters contending that a security company violated their rights to privacy.

Large damage awards
Another contributor to increased US tort costs was record damage awards in medical malpractice cases(7). American damage awards are driven by several factors, in addition to the role of juries in deciding the awards. First, in personal injury cases, plaintiffs usually ask for damages for pain and suffering. Indeed, the Tillinghast study estimated that the percentage of tort costs attributable to damage awards for such non-economic losses exceeds that for economic loss (24% vs. 22%)(8). Given the restrictions the US Supreme Court has placed in recent years on punitive damages – the damages intended to punish a defendant plaintiffs are likely to place increasing emphasis on such noneconomic damages in the future(9). Second, punitive damages remain an important issue in many cases(10). A third factor in large damage awards is the availability of contingency fees. Plaintiff’s attorneys who bring tort actions typically get a percentage of the settlement or damages award. Contingency fees exert a constant pressure to increase damages, particularly damages that are more subjective in nature, like pain and suffering and punitive damages.

There are signs that some Europeans would like to move in the direction of the US on both damages and attorney fees. While damages awards in most European countries are still dwarfed by the largest US awards, European awards are increasing. Some of the awards in recent English medical malpractice cases would feel at home in US courts. The cost of clinical negligence claims against the NHS more than doubled between 1998 and 2002, when it reached £5.25bn.

Some European countries already have contingency fees. Ireland, one of the most litigious countries in Europe, has long had “no foal no fee” agreements. Sweden recently adopted contingency fees in class actions. While the UK has not gone this far, the government adopted conditional fees for some types of litigation in England and Wales to reduce the costs of legal aid. However, conditional fees – which allow attorneys a maximum uplift of 100% of their hourly rates – have not been popular with the legal profession. Some have suggested that only contingency fees will provide enough incentive for attorneys to take difficult cases.

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