Insurance sector lobbying will cost collision victims and curtail access to justice.
Archer, Hamilton, Aitken, Mosley and Campbell may have been cycling since before they could spell Libel, Writ and Damages, but their relevance when considering changes to the compensation system is that their names are those with which the general public are most familiar when it comes to the Costs of Legal proceedings.
The headline always runs thus (with variations): “X was awarded £*** damages (or not); legal costs are expected to exceed £100000.”
The point being that resorting to formal legal proceedings to protect or defend oneself is expensive. The traditional way it works is that the claimant (or plaintiff as they used to be called in England) pays their solicitors and barristers bills plus court fees and witness costs. If the claimant wins, then they can recover their ‘reasonable costs’ from the loser.
That’s not all their costs; just the proportion that is reasonably incurred. Maybe somewhere between 75 and 85{9b4a2c8832b2482ca7eb937f6bfa363e1f3f7cb05e1b42927da41c9eadde8c32} of the actual outlay. In contrast, solicitors working in the injury sector generally forgo any shortfall: another example of how those practising in this area have strived to make it work.
The flip side concentrated the minds of Hamilton, Archer and Aitken. They lost their claims, so found themselves liable to pay the costs of their successful opponents. On top of their own legal bills. Ouch.
The same principles apply when we seek compensation for road rash, fractured collar bones, loss of earnings and mangled bikes. The evidence is collected –medical reports, copies of Police files, etc – and the claim presented to the insurer of the erring motorist. The claim may settle through negotiation, or it may not, in which case the only option (apart from giving up) is to resort to the court process. Which, as some of our friends above (or in the case of Campbell and Mosley, their opponents) have found, the costs of the exercise may become the tail which wags the dog.
The Government is now in the process of transferring the cost of access to justice (once provided by the state) to the actual victims of accidents.
A couple of decades ago, something called Legal Aid was available to injured people. It was a means tested loan fund. The state sponsored a claim which had reasonable prospects of success, working as follows.
The legal aid board vetted each case at the beginning and issued a certificate up to a certain stage, then reviewed the case’s merits and extended the certificate to cover a few more steps. Somewhere along the line a claim would conclude by a negotiated deal or be won in court; the compensator would pay the damages and then the costs incurred. Any Legal Aid money the fund had invested in the case would be repaid into it and any contributions the claimant had made were refunded. There were no such things as Success Fees or Legal Expense Insurance premiums, so the outlay for compensators was far less than it has been over the last 12 years or so since legal aid for injury claims was abolished.
The overall costs to the taxpayer were mainly administrative. In respect of unworthy cases where the certificate was pulled at some mid-point because the case, when risk assessed, lacked sufficient prospects of success, there’d be a token payment to the claimant’s lawyer for work to date. There were some failures at trial, but given the vetting process, most destined to fail were weeded out along the way.
In contrast, Legal Aid money paid out on criminal, immigration and child care issues is spent without any prospect of it ever being recovered. However, in personal injury work, the government recouped most of the funds it laid out for two reasons, first, the legal aid fund was a sponsor rather than a charity and second, the state had a first charge upon any property recovered or preserved through legal aid supported claims.
And for those ineligible for legal aid?
As much of the populace was outside the financial criteria of the scheme, the solicitor instructed would take a view of any claim’s prospect of success (we now call this risk assessment) and in the vernacular, ‘spec it’. The essential expenses, which could not be avoided, such as the cost of a copy of the Police file, copies of hospital notes, medical report and court fees were in the main ‘invested’ by the lawyer (because otherwise the claim simply would not happen) or if the claimant appeared to have some capital, might be contributed to direct.
Others in the industry, primarily the consultants and others who provided the essential medical reports would allow a generous period of credit for their fees. Overall, those with the biggest investments in the case, the lawyers and the doctors, waited the longest to be paid for their work and investment.
Summarizing, up to about 1998, the personal injury claims system was supported by those who practised in it and for the fortunate few eligible for legal aid, by the state.
So what was so wrong with Legal Aid that made the Government scrap it? And how much better is the regime which replaced it?
The main reason was political: the legal aid bill was going through the roof, the government wanted to be seen to be doing something, so cut the branch of the scheme which was easiest to lop off, irrespective that it was the one that actually cost the state the least.
However, a large chunk of administrative work was removed from the public sector together with the bill for unsuccessful cases. That bill was transferred to the insurance sector through the government’s bright idea: Conditional Fees (CFA) and After the Event (ATE) legal expense insurance. Twelve years on, the costs of recovering compensation is now being foisted upon accident victims themselves. Insult to injury?
A CFA is an agreement between lawyer and client that the lawyer only gets paid (by the compensating insurer, on top of any damages) if the case is won. No win, no fee. What about the cases (Archer, Hamilton, Aitken types) where the case is lost? Who pays the successful opponent’s costs (called adverse costs)?
Many Lawyers were not keen on CFA cases, because they did not get paid for all their work if they lost. Why on earth would a law firm take on a case that was not a sure fire winner, if they risked investing a year’s time and effort in a risky adventure with no chance of payment?”
Two simple solutions were created by government, which did not want to be condemned for leaving victims of accident without recourse to law. To cover the adverse costs, the concept of ATE insurance was born. For a premium, an insurer such as the Law Society’s Accident Line underwrites not just the exposure to adverse costs but also the cost of expenses (such as court fees) incurred in bringing the case. Not the lawyers’ fees, note. Under the rules, when a claim succeeded, the compensator (motorist’s insurer) had to pay this premium.
To encourage lawyers to take on challenging (risky) cases, the CFA rules provided that lawyers could charge a percentage uplift on their fees, payable like the fees themselves by the compensating insurer. In road traffic cases, this uplift’s 12.5{9b4a2c8832b2482ca7eb937f6bfa363e1f3f7cb05e1b42927da41c9eadde8c32}. The idea was to provide a fighting fund to sponsor the riskier cases and to encourage law firms to take them on.
Thus, the financial burden previously carried by the state in providing access to justice for accident victims, impoverished or wealthy, disadvantaged or educated, passed to the legal industry and insurance sector. And the latter has done nothing but whinge and fight ever since to get the scheme changed. And now it has succeeded, to an extent probably beyond its wildest dreams.
But for Government it was an area of which it had effectively washed its hands. The system worked, the overheads were borne by the legal profession and ultimately paid for by insurers, who invented the term ‘Compensation Culture’ in order to give vent to their wrath. Now the Government has been lobbied and embarrassed into taking the insurance industry’s position.
Conditional Fees and After the Event Insurance: has it worked?
The compensation system has had to rely to an even greater extent upon the principle players on the claimant’s side. Legal aid provided a source of funding on an interim basis: lawyers could claim disbursements such as court fees (it currently costs £1120 in court fees to get a case worth less than £15000 to a hearing), medical reports and other experts’ fees plus a payment on account of their own charges.
The cost of funding is now entirely carried by legal practices. Take a claim that’s contested (so needing court proceedings as alternative to abandonment) and is worth about £10000. It will have a ‘shelf life’ of between 12 and 18 months due to time periods imposed by the protocols which control the cases and delay in the judicial system. In that time the law firm with conduct will spend at least £1600 in making it all happen plus the wages and administrative expenses, before it has a hint of being paid.
So from HMG’s perspective, there have been huge economies in the administration of justice.
Many claimants who were previously ineligible for legal aid on financial grounds found that they could bring cases which they otherwise could not afford, given the lawyer’s ability to run them due to the success fee fund.
ATE insurance removed the prospect of a claimant being bankrupted if a case failed. There were other consequences, largely due to the reaction of compensators.
While insurers reaped the whirlwind of success fees and ATE premiums, the courts were subjected to a tsunami of arguments over the validity of the wording of the conditional fee agreements, their enforceability; virtually every aspect of them was tested by insurers through the court system. This was known as satellite litigation and cost the taxpayer a fortune in terms of court funds, judges’ wages and support staff.
Access to justice has been guaranteed through the cooperation of the legal and medical professions and apart from the excessive use of the court system by insurers challenging the CFAs in place, the taxpayer was relieved of a hefty administrative burden.
2012 sees the government announcing plans to fundamentally change the operation of the compensation system.
Two of the expenses currently borne by compensators, the success fee uplift on the solicitors’ base costs and the after the event insurance premium will no longer be recoverable from the compensator.
Instead, these charges and costs will be borne by the successful claimants. In return, government has promised to increase damages for injury (pain, suffering, and temporary disability) by 10{9b4a2c8832b2482ca7eb937f6bfa363e1f3f7cb05e1b42927da41c9eadde8c32}. Such an increase is unlikely to cover the ate insurance premium (typically £350; award for broken collar bone £3150); it will not cover a success fee, the purpose of which, we recall, was to provide a fund that would enable lawyers to run riskier cases which had less prospect of success: the win four-lose one free situation.
Whatever else may happen, there will be less cash in the system because of competition between lawyers keen to attract clients. Many will start offering their services without charging the client a success fee, but will then not have the fighting fund to support riskier cases.
Lawyers will be unwilling to take on a case with less prospects of success because they will no longer have the pot of success fees derived from cases they have won to sponsor the odd loss. So people with valid, but difficult, cases are likely to be excluded.
Law firms will be tempted to cut the costs of pursuing claims by utilizing unqualified paralegals instead of legal executives and solicitors. The standard and quality of the service will fall.
With success fees and ATE premiums no longer the burden of insurers that’s one less thing for them to argue about in court, so another financial bonus for the government.
The final twist……..The Small Claims Trap.
Example of how it is now:
Q) I have been hit by someone opening a car door. I haven’t really hurt myself but my bike is badly damaged. The driver says I was to blame because I was overtaking up the inside to gain access to the red box ASL. It’s going to cost nearly £1500 for a new front wheel, carbon forks and front mech. What can I do?
A) This is a classic dilemma. It applies where cyclists have damaged expensive kit due either to other’s carelessness or defects in the highway and is an argument in favour of ensuring that you have wholly adequate cover for you bike on your home and contents policy (often a better option than a stand alone cycle policy). While appreciating that you may not want to claim on your own policy, there may not be any option, because this is what the judicial (court) system refers to as a ‘small claim’; see below:
Q) How small is small?
A) A personal injury claim where the value of the injury currently does not exceed £1000 is a small claim. The insurance industry would very much like to increase this to £5000.
A non-injury claim (damaged bike) where the amount in dispute is less than £5000 is also a small claim. Currently, it appears that insurers’ wishes are about to be granted.
Q) How does that affect the claimant?
A) The court will almost never award a claimant in a ‘small claim’ the costs of hiring a lawyer. At the £150+ per hour rate the lawyer has to charge to cover the firm’s overheads, the exercise can easily lose viability, because the costs incurred will erode the damages. Insurers know this very well and play on it.
(It seems likely that the small claim limit is about to increase to £5000. Thus, all an insurer has to do in for example an accident at work claim, is to assess its value and if less than £5000, make a blanket denial in the knowledge that the costs of proving otherwise will rapidly exceed the value of the claim. Alternatively, make a token, nuisance value offer which in the absence of any real alternative, is likely to be accepted.)
Q) Can a claimant bring a case in person?
A) Of course, but pitted against the familiarity and proficiency which an insurers claims department has at its disposal, that will be a real challenge to even the articulate and intelligent, never mind someone who is inarticulate in recounting symptoms due to poor intellect, learning difficulties or language barriers.
Thus, sustain one of these injuries and a claimant will be at real risk of being refused an order for the costs of legal representation and so at insurer’s mercy:
Soft tissue injury to shoulder with considerable pain but almost complete recovery within a year
Value £2850
An uncomplicated fracture to the wrist
Value £4850
Severe dislocation of the thumb
Value £2600 to £4450
Minor or undisplaced fracture to the ankle, sprains and ligamentous injuries recovering within a year.
Value not exceeding £3600.
Summary
As has been seen in the health sector, particularly in dentistry, the state has virtually abdicated any responsibility for providing an accessible service. The same now applies in claimant accident compensation. No longer will ‘the polluter pay’.
What began as political dogma in removing unwelcome encumbrances from state responsibility so irked the insurance sector that government has now relented to intense lobbying and pressure, giving the insurers not just a windfall through transferring essential costs to the claimant but effectively denying perhaps 50{9b4a2c8832b2482ca7eb937f6bfa363e1f3f7cb05e1b42927da41c9eadde8c32} of accident victims the opportunity of legal representation, for that is the proportion of injury claims valued at £5000 or less.
As cycle use increases nationally on the back of public and private initiatives, the inability to recover redress for losses arising from encounters with motorists and defective highways can only be counter productive.
Tragically, the casualty rate is rising in many metropolitan areas and Shire counties. The reality is that the prospects of claiming from the insurers of the erring motorist or negligent highway authority are diminishing. This is not a state of affairs calculated to assist the continued cycling revival, nor the fortunes of an industry in which massive investment continues to be made.
© Cycle-SOS, May 2012
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