26 September 2013

“Skin in the Game” : Funding Personal Injury Claims since 1 April 2013

In the 1990’s most accident victims had the benefit of funding under a Legal Aid Certificate from the Legal Aid Board.   Legal Aid was abolished in 1998 and replaced by the “No Win – No Fee” system we have today.   When first set up the No Win – No Fee system recognised that lawyers were taking a risk that if a claim failed they would not recover any of their costs in pursuing the claim and usually resulting in the loss of thousands of pounds worth of work.   As a result,  the Government allowed lawyers to charge a success fee on top of their basic charges and that fee was recoverable from the losing defendant where the case succeeded.   On most cases claimants also took out an insurance policy to protect against liability for the defendants costs if the case was unsuccessful.   Such premiums,  like the success fee,  were to be recovered from the losing party.

Most claims for personal injury are met by an insurance company.  The insurers accepted the introduction of the No Win – No Fee system no doubt in part because they also saw business opportunities themselves.

In the Naughties further reforms to the system were introduced,  including allowing non-lawyers to set up claims management companies and to charge lawyers referral fees for claims they had captured through marketing, such as TV adverts and websites.

Whereas historically lawyers had dealt directly with injured clients,  they were now  often paying an intermediary for the referral together with other add-on costs such as tied-in insurance and medical reports.   Personal injury victims were becoming a commodity to be exchanged between various parties.   The popular media encapsulated these changes in the term “compensation culture” (usually followed by “...gone mad”).   The insurance industry saw an opportunity to pressure politicians for change.   In particular,  the insurers wanted to cut legal costs to make any success fee and insurance premium non-recoverable from themselves.   Their big moment arrived when the Tory / Lib Dem Coalition came into power in 2010.  

Since April 2013 the legal costs the insurance industry must pay have been slashed and they now do not pay any success fee and insurance premium providing cover for litigation risk.   As a consequence,  most claimants now make a contribution towards their legal costs from any damages recovered.   The insurers from their perspective would like to see the role of lawyers acting for injured clients removed altogether to a position where for many claims the claimant has to deal directly with an insurer without any independent representation to negotiate the right level of compensation recognised in law.

There is more in the pipeline.  Sometime in the Autumn 2013 we expect the Government to announce that the Small Claims limit for personal injury,  which is presently £1,000,  will rise to £5,000**.    In a Small Claim the claimant cannot recover any legal costs incurred.  Should this be enacted the majority of claimants with injuries worth less than £5,000 will have to pursue the claim without any representation and will be at the mercy of an insurance industry whose first priority is the interests of their shareholders who unsurprisingly would rather not pay out any money on claims wherever possible.

[**UPDATE: The Ministry of Justice announced in October 2013 that they will not be raising the small claims limit in the immediate future but will keep the matter under review. In part this may be a realisation that raising the limit risked creating a new unregulated "wild west" for claims companies to take a large cut from injured clients damages in fees,  in the same fashion they presently do for PPI claims against the banks] 

Our Advice at Dowse & Co

Speak to us first (free of charge) before you consider any settlement proposal from an insurer where you have not so far had any independent advice.   The insurer will certainly have made an offer significantly lower than you are entitled to if your case went in front of the court and with the aid of a skilled and experienced lawyer you are very likely to recover perhaps 2 or 3 times as much,  if not more than any initial offer.   It is for all these good reasons that we also support our professional body, The Law Society, in their campaign “Don’t get mugged by an insurer” which encourages accident victims always to consult a solicitor before accepting any offer from an insurer.