article
A level playing field
10 February 2010
Lord Justice Jackson published his weighty report on the subject of
civil litigations costs on 14th January. The preliminary report
published last year had given some indication as to his thinking
but the final report makes some radical recommendations that will
have a significant impact on the insurance world.
So what are the major areas for brokers to be aware of?
After the event insurance (“ATE”)
The report strongly recommends that the cost of ATE insurance
should no longer be recoverable from the paying party. Further Lord
Justice Jackson recommends that there ought to be one way cost
shifting in personal injury claims that is the Claimant would not
have to pay the Defendant’s costs even if the claim is lost. If one
way cost shifting is introduced then there would be no need for a
Claimant to take out ATE insurance in personal injury claims. In
the remaining claims where ATE insurance may be available, parties
will have to look carefully at the cost of taking out the insurance
given that it will not be recoverable and carry out a risk/benefit
analysis. Going forward, the question has to be asked as to how
many ATE insurers will continue to exist and also if the plans are
implemented as to whether or not litigants will be dissuaded from
litigating due to a potential adverse costs order.
Before the event insurance (“BTE”)
Lord Justice Jackson expresses his support for BTE insurance and
believes more policies ought to be taken out both by companies
through bespoke policies and individuals through their household
policies. He has suggested that insurers should work with the
Department for Business, Innovation and Skills to encourage a
greater take up of these policies by small and medium sized
companies (“SMEs”). It is anticipated that this will be a growth
area for Underwriters as BTE insurance may become the only way in
which SMEs will be able to afford to litigate. However there are a
number of issues to consider on this. First there is a concern
raised in the report as to whether the cover offered by legal
expense insurers is wide enough. There has been recent
correspondence in the insurance press as to whether or not cover
can be extended and as to whether the UK will move towards the
continental model. In addition, the view has been that the many
policies issued pay for the few claims made. If though the burden
for paying legal costs is transferred to BTE insurance then there
is likely to be a greater awareness as to the terms of the policy
and a greater number of claims. Most commentators seem to agree
that if there is an extension of BTE insurance then the costs of
the policies will increase. The question then to be asked is
whether the general public will take out BTE insurance. Given the
high percentages of people who do not take out motor or household
policies one doubts that there would be a rush to take out what
would be a perceived high premium to pay for lawyers!
Referral fees
Some of Lord Justice Jackson’s strongest criticisms were
reserved for referral fees. Word such as “abhorrent”, “offensive”
and “wrong in principle” featured in the report. He suggests that
referral fees ought to be banned so far as they relate to personal
injury claims and says that serious consideration should be made to
banning referral fees in other areas of work. The counter argument
is that bodies other than lawyers are quite capable of capturing
claims and give these people access to compensation. But for these
companies, would these litigants actually go and see a solicitor to
make a claim? It has been suggested that the Office of Fair Trading
may become involved in this debate. A number of brokers are engaged
in this market so what will happen if this recommendation is
accepted? In 2011 third parties can own or part-own a law firm so
many brokers may see this route as being the most appropriate to
maintain their income streams. One other point to consider is that
many legal expenses products work on the basis of claims being
“sold” and in effect the fee pays for the policy, keeping the
premium price very low. This type of policy would come to an end
under these proposals. Presumably the intention is that BTE
insurance would pick up the pieces but again it would remain to be
seen whether the general public would choose to pay for such a
policy. Alternatively cynics believe that referral fees may
continue to be paid but the practice would be underground.
General damages
The report recommends a 10% increase in general damages for all
tortious claims. The idea is that the increase in damages goes part
way to compensating Claimants for the fact that they will no longer
be able to recover their ATE premium from their opponent. In
addition Lord Justice Jackson says that lawyers may no longer
recover their success fees from the losing party and that the
success fee should come out of damages, up to a maximum of 25% of
damages but no so far as damages relate to future loss or care. The
increase in damages is meant to act as a cushion for that as well.
Therefore the increase serves as a windfall for Claimants not
pursuing a claim under a CFA. Most commentators have suggested that
the net effect will be that there will be a saving to insurers by
introducing these measures.
Of course the recommendations are all well and good but what is
the prospect of them being implemented? The Ministry of Justice has
already issued proposals in relation to publication proceedings
suggesting that the success fee ought to be reduced. This might be
seen as a very quick response to the report but the reality is that
publication proceedings are viewed very differently politically.
The lobbying that would go on in the personal injury lobby is very
different. In addition many of the reforms suggested would need
primary legislation, particularly the major reforms relating to ATE
and success fees. It remains to be seen if some of the more minor
areas of proposed reform are brought in by rule change to test the
water and this could be done within the next 12 months.
We are also in an election year so is it feasible that whoever
forms the next government would see this as a priority? Given where
we can foresee the party battle lines going into the election one
cannot see these measures being introduced imminently. Civil costs
are not going to be a subject which will grab the nation! However
over the past few years a great deal of concern has been expressed
about how Claimants now in effect litigate risk free and that more
effort needs to be made to bring about an equality of arms.
This article was first published in Insurance
Brokers Monthly
save to PDF