This article discusses some of the effects of frivolous lawsuits and some of the remedies that can be made to curb the massive amounts of these suits that are filed.
One thing it fails to mention that I feel is very important is that part of the reason the filing of suits has gotten so out-of-hand is what is called a "nuisance value." Basically, a nuisance value is a small amount of money (often $10,000) that an insurance company (or other large corporation) will pay out to rid themselves of the "nuisance." This amount of money is miniscule in relation to the amount of money it will cost in litigation. However, the err in this way of thinking is that now, every Joe Blow with a desire for a quick buck is filing suit, knowing they will probably get at least a "nuisance" award. If companies would simply pay out the larger sums of money now to litigate, it would discourage lawyers from filing the frivolous suits in the first place. Remember, most plaintiff lawyers will not see a dime if their clients don't win. It is very costly in the short-run, but I believe more economically sound in the long-run.
Case in point, (the short version) the firm I used to work for dealt with one lawsuit in which the Plaintiff was claiming a large sum in damages, we offered about $14,000 (nuisance), which was declined. This case was taken all the way to trial in which the Plaintiff was awarded nothing, not one, single dime. The Plaintiff's lawyer went broke and had to close shop.