Ambulance-chasing firms face a major crackdown under proposed reforms to civil justice published today.
So-called "claims farmers" should be banned from selling personal injury cases to lawyers for a fee, a senior judge said.
Lord Justice Jackson said the current structure of so-called "no-win no-fee agreements" was not benefiting the public.
His review called for radical changes to the way costs are decided in all civil cases in England and Wales.
Millions would be saved if ministers implement the proposals, the Court of Appeal judge said.
In some personal injury cases a "costs war" has pushed fees paid to barristers and solicitors to more than 1000% of the damages, his year-long study found.
Libel cases would also be affected by the changes, with celebrities who win claims against newspapers and magazines forced to pay lawyers' fees from their payout.
Currently the defendants must pay the winning side's lawyers' "success fee". On top of other payments it can leave them with a total bill of four times the actual cost of the action.
More families should buy legal insurance to cover their costs in the case of "nuisance" rows with their neighbours, the report said.
Home owners have been forced to sell their property to cover the crippling cost of action over petty rows.
More should be routinely covered as part of their general household insurance, the review said.
Lord Justice Jackson, a Court of Appeal judge, criticised the "escalation" of referral fees in no-win no-fee cases paid to claims management companies since the introduction of the Access to Justice Act in 1999.
He said: "The focus of our litigation process should be upon compensating victims, not upon making payments to intermediaries and others who have moved in recent years into the personal injury compensation process.
"The fact that such substantial referral fees are being paid illustrates that there is too much money swilling around in the personal injury compensation process."
Solicitors should compete with each other on who would take the smallest share of their client's payout, he said, not who paid the most to "buy" cases.
The review found no-win no-fee cases, also known as Conditional Fee Arrangements, led to huge increases in civil litigation costs in recent years.
Stopping defendants paying success fees and the cost of insurance taken out at the start of the case in case it fails will lead to "significant cost saving", the report said.
It recommends overall payouts for damages should increase by 10% at the same time to make sure claimants are properly compensated.
The Lord Chief Justice, Lord Judge, and the Master of the Rolls, Lord Neuberger, welcomed the review.
Lord Judge said: "The judiciary has been concerned for some time that the costs of civil litigation are disproportionate and excessive."
Lord Neuberger said: "Without action, costs will continue to spiral out of control and justice will be undermined, and the public interest severely affected."
Justice Secretary Jack Straw thanked the judge for his report.
He said: "I would like to thank Sir Rupert for undertaking this review of costs in the civil courts and for producing such a substantial, comprehensive and detailed report.
"It is a remarkable piece of work which is based on extensive consultation and puts forward a broad range of significant recommendations for reform.
"I look forward to considering these proposals in detail."