The report, International Comparisons of Litigation Costs by NERA Economic Consulting provides a groundbreaking comparison of liability costs – a phrase used here to describe the costs of claims, whether resolved through litigation or other claims resolution processes – as a fraction of Gross Domestic Product (GDP) across Europe, the U.S., Canada and Japan. Businesses’ general liability insurance costs provide a basis for comparing liability costs among countries, with researchers controlling for non-litigation-related factors. Insurance costs are a meaningful basis for analysis because a large fraction of liability costs are covered by insurance, and coverage is sufficiently similar in Europe, the U.S., Japan and Canada. These countries also are generally similar in the scope of civil redress they provide for harm caused by third parties.

Key findings* are as follows:

• The U.S. has the highest liability costs as a percentage of GDP compared to other countries surveyed (1.66%), with liability costs at 2.6 times the average level of the Eurozone economies.
• U.S. liability costs are four times higher than those of the least costly European countries in the study – Belgium, the Netherlands and Portugal.
• Although the U.S. has by far the most costly liability system, the analysis in the report shows that liability costs in the U.K., Germany and Denmark have risen between 13% and 25% per year since 2008.
• Japanese liability costs as a percent of GDP are lower than all of the other countries in the study, except for China. Changes in the legal environment in Japan that would encourage litigation could result in much higher liability costs.
• Features of the legal environment in each country are highly correlated with litigation costs, implying that changes to the liability system may have a substantial effect on costs. A common law (rather than civil law) tradition and a high number of lawyers per capita are strong indicators of higher litigation costs.

*Key findings are based on 2008-2011 data

The NERA research finds that countries with relatively higher costs have more frequent or more costly claims or both. The U.S. has the highest estimated liability costs, followed by Canada. The U.K. is the most costly in Europe, followed by Ireland and Italy. Absent any offsetting benefits from differences in legal protections, higher liability costs in these countries reduce their international competitiveness.

The report notes that features of countries’ legal systems explain most of the variation in liability costs, since the countries provide similar levels of protection, regulation and deterrence against wrongdoing. The report concludes with a set of recommendations for countries, which could potentially reduce liability costs if adopted.