New curbs on aggressive advertising by "ambulance-chasing" lawyers and protection from prosecution for "good Samaritans" are being backed by the Government.
It is to act on a warning from a former Tory minister that the compensation culture has grown "out of control".
The study, commissioned by David Cameron, concludes that members of the public are encouraged by unscrupulous lawyers to pursue frivolous personal injury and negligence cases, while "well-meaning" people are deterred from organising voluntary activities.
In his report, Lord Young of Graffham, who was trade secretary under Margaret Thatcher, condemns the advertising techniques employed by legal firms offering to pursue "no win, no fee" lawsuits.
The claims management industry is now worth nearly £300m year, with 1,500 firms spending £40m annually on advertising.
People who suffer an accident are often seduced by the promise of an instant cheque once their claim is accepted, which Lord Young describes as "a high-pressure inducement to bring a claim if ever there was one".
Claims management firms then "auction" the case to solicitors offering fees of up to £800.
Lord Young said: "Quite apart from encouraging litigation in circumstances when it might not otherwise occur, claims go to the solicitor who pays the most, rather than the one most suitable for the client, sometimes even if their practice is far away from their client."
In his report, to be published later this month, he recommends fresh controls on the volume and contents of the advertisements, warning that current restrictions do not go far enough.
Lord Young calls for action by the industry's watchdog and the Advertising Standards Authority to curb such companies' "damaging actions".
He warns that a "particularly pernicious" climate of fear has developed in which well-meaning members of the public are put off from organising voluntary activities for fear of being sued if an accident happens.
"During the winter, advice was given on television and radio to householders not to clear the snow in front of their properties in case any passer-by would fall and then sue," he says.
"This is another manifestation of the fear of litigation. In fact there is no liability in the normal way."
He says there is a popular perception that it is dangerous for "good Samaritans" to intervene in accidents because they may then open themselves to legal suits.
Lord Young adds: "People who seek to do good in our society should not fear litigation as a result of their actions."
He says the Government should be ready to legislate to clarify the law to spell out that people have no liability in such cases unless negligence can be proved.
A source close to the Tory peer said: "The compensation culture is out of control. It is time we shifted the balance away from the health and safety industry towards a fair and proportionate system of justice.
"We need to stop the aggressive advertising techniques which encourage frivolous claims and mean that perfectly legitimate claims get dropped because they're not lucrative."