American Rule

DEFINITION of 'American Rule'

A rule in law and economics that says attorney fees should be paid by each party involved in litigation - even the party that wins the case. An exception to the American rule can occur when the court awards the winning party compensation to cover fees against a losing party that has acted in bad faith.

BREAKING DOWN 'American Rule'

The American Rule contrasts with the English Rule, in which the losing party pays the fees for the winning party. Most countries outside the U.S. operate under the English rule. Some people argue that the American Rule allows plaintiffs to threaten other parties with expensive lawsuits in order to get a favorable settlement.