One small American vintner after winning a product liability case was told by

One small American vintner, after winning a product liability case, was told by the opposing lawyers that if it didn't pay the plaintiff's legal bills - almost $500,000 - the ruling would be appealed. Faced with a ruinous battle, it capitulated.Among other costs are huge amounts of management time and damaged corporate reputations. In some cases bankruptcy looms, with the subsequent social costs of plant closures, layoffs and unpaid creditors. Lloyd's, the London insurance market, is in deep financial trouble partly because of payments to people critically injured by asbestos. Two US insurers, Continental and Home, have become takeover targets after being weakened by liability claims.Few people would argue for a return to a pure caveat emptor system, with customers taking on all responsibility for a product's safety Nor are all the cases farcical The asbestosis suits seem justified.

So do the claims of thalidomide victims, born with severe deformities after their mothers took the drug to treat morning sickness.Others have become dinner-table anecdotes - true urban legends - such as the one about Stella Liebeck, the 81-year-old woman in New Mexico who won pounds 2m from McDonald's after she spilled a cup of coffee in her lap while driving away from one of its restaurants On appeal the award was cut to pounds 320,000. Another woman claimed to have found a foreign object in a doughnut, and when a laboratory said it could find nothing wrong, she sued it for throwing away the sample before doing enough tests.Measuring the number of frivolous cases is difficult Some legitimate ones fail for lack of evidence. Others that are unfounded succeed through an emotional appeal to the jury. Trial results seem to indicate either that fewer cases have merit, or that juries are becoming more discerning. From1960 to 1989 plaintiffs won about 60 per cent of the cases that went to court. Since then the figure has fallen to 40 per cent.The problem with the US legal system is three-fold. First, product liability cases are dealt with by juries, which tend to identify and sympathise with victims rather than the large "money-grabbing" companies.

This encourages them to rule in the plaintiff's favour, and to make big awards for compensation.Secondly, they have the power to levy virtually unlimited punitive damages, often running far higher than the compensatory awards. Where several customers file separate claims rather than a class-action suit, the company can end up being punished several times over.Finally, there is the contingency fee system of paying lawyers. Instead of billing for time spent working on a case, litigation lawyers agree to take a percentage of the award if they win. Although this opens up the field to victims who otherwise could not afford to sue, it also encourages lawyers to build cases and then go looking for clients.The contingency fee system also helps to inflate the awards. Juries know that between a quarter and a half of the amount they order the defendant to pay will end up in the pockets of the plaintiff's lawyers, so they increase the awards to compensate.In Britain, things are different. Such actions are decided by a judge alone and only in exceptional cases, such as libel, is a jury involved There are no punitive damages, only compensatory ones.