More than 600 law firms are embroiled in The Accident Group litigation, possibly the biggest ever against the profession. Rachel Rothwell explores the background to the case

‘The TAG litigation is probably the biggest claim there has been against the legal profession,’ says Frank Maher, a partner at Liverpool law firm Legal Risk. ‘There are well over 600 firms involved, and an exposure of more than £100 million. It is probably the most significant action against a large portion of the legal profession since the home income scheme litigation in the 1990s.’


TAG – or The Accident Group – is a claims management company that has been in liquidation since January 2004. From July 2001, it gathered personal injury claims from the public on a ‘no win, no fee’ basis, and these claims were underwritten by an after-the-event (ATE) insurance policy that the claimants were required to sign up to, provided by insurer NIG. The problem was that most of these claims failed.


TAG acted as NIG’s agent, underwriting policies and handling claims, which it passed on to a panel of more than 600 law firms. By the end of October 2005, almost 65,000 claims had been concluded under the TAG scheme. These claims had a failure rate of 75% – a far cry from the 7.5% rate that NIG had originally projected. By the end of October 2005, the claims for indemnities under ATE policies totalled about £90 million. It is estimated that the total indemnity to be paid out may ultimately exceed £104 million.


In the aftermath of the scheme’s collapse, the insurers that funded the claims are looking to recoup their losses from wherever they can. That means not just from TAG, but also from its panel law firms.


NIG, the main insurer, has assigned its interest in the litigation over to Winterthur, which is suing the panel firms and Manchester firm Rowe Cohen – which had acted as a gatekeeper for the TAG scheme – for negligence. The insurer claims they failed properly to vet cases and were negligent in taking on claims that were bound to fail. The firms are vigorously defending the action, which is still in its relatively early stages.


As if that sizeable litigation were not enough, Winterthur and a group of Lloyd’s insurers have launched a second action relating to an ‘investigation fee’ paid by the law firms to TAG sister company Accident Investigations Limited (AIL). The action relates to a fee of around £350 per case, which firms were obliged to pay under the TAG scheme. In 2004, the Court of Appeal ruled that these fees were really referral fees, which at the time were not allowed under Law Society rules.


Faced with this onslaught of litigation, the panel firms are not about to lie down. They have grouped themselves into several camps to co-ordinate their defence, and have recently approached high-profile City lawyer David McIntosh to act as a mediator between the defending groups and make representations on their behalf.


Several of the groups are organised around the firms’ professional indemnity insurers, and as such, are not available to all-comers. City firm Kennedys is representing several hundred firms that have policies with insurers including Zurich, AIG, Royal & SunAlliance and St Paul Travelers. City firm Reynolds Coleman Bradley has set up a new group, currently acting for around 38 firms, instructed by insurer WR Berkley to act for its policyholders, though it will also act for other firms. US firm Howrey is acting for the ‘TAG defence group’ of around 150 firms, but is only advising on the AIL fee issue. In addition to these groups, some firms are representing themselves.


Those groups that are instructed by professional indemnity insurers are not able to advise the panel firms on the issue of insurance cover. As Mr Maher explains: ‘There is an issue of what is called sideways exposure, because on every insurance policy, there is an excess. Because there are lots of little claims, for most firms, the insurers are contending that the claims are within their excess. So in reality, [they are saying] there is no cover for the claims. There are also vast claims for the AIL fee, for which insurers are saying there is no cover [because insurers do not fund referral fees].’


The defending firms had attempted to head off the negligence claim against them by claiming that the client files – which were essential to Winterthur's case – were protected by legal privilege, particularly as they contained sensitive medical information. This privilege claim failed in the High Court in April (see [2006] Gazette, 21 April, 1). Erik Salomonsen, a partner at Bond Pearce in Plymouth, which acted for around 140 panel firms in the privilege action, says: ‘It was the professional and legal duty of the TAG panel solicitors to uphold their former clients’ confidence and privilege, and we took the view that breach of that duty exposed solicitors to serious disciplinary sanction and claims by TAG claimants for breach of confidence. That is what underpinned our whole approach to the privilege issue.’

Steve Holland, executive director of broker Alexander Forbes Professions, maintains the ruling is not necessarily fatal to the firms’ defence. He says: ‘The privilege ruling would have been quite a sweet way of hitting that claim on the head, but if they had won, the chances are that insurer [Winterthur] would have taken it to the Court of Appeal, and then the House of Lords if necessary, which would have dragged on. In reality, there are other defences which the insurers representing the panel firms have got to run, which I think will stand up.’


By blasting through the privilege argument, Winterthur won the right to get its hands on and examine the firms’ client files – all 75,000 of them. To overcome the practical difficulties, the insurer plans to conduct an audit of 10% of the files, and then apply the results of these test cases to all the files. Mr Holland is sceptical that this strategy will stick. He says: ‘The panel firms have a strong case. Around 7,000 files will be audited. But how can Winterthur say that there is liability [for all panel firms] on the basis of these files, when some firms ran very efficient, good systems? How can you make those firms pay, based on a sample of test cases? Firms will find that very difficult to swallow and will not accept it.’


The panel firms certainly do not appear to be about to accept any such thing. Steven Reynolds, who is heading Reynolds Coleman Bradley’s defence team, is bullish about the firms’ defence. He says: ‘We think that 80% of the big generic issues are the same in both the AIL and negligence litigation. TAG was a money-go-round. It was at the centre. TAG was the insurers’ agent. Cases were returned to TAG for repayment, but TAG did not repay the lenders.


‘No policy holders – or almost none – have had to pay anything. It is about insurers trying to get money back from solicitors after [the insurers] failed to control their agent.’


Mr Maher notes that many firms have factual defences to the claim of negligence. He claims: ‘There are a lot of cases where solicitors notified TAG that a case should not proceed, and TAG mislaid that notification. There are also a lot of cases that seemed okay on initial inspection, and so there was nothing wrong with taking them on in the first place – for example, a slipping claim where the defendant had a good system of inspection. There are also cases where the claimant did not co-operate with solicitors. That is not the solicitor’s fault.’


Needless to say, Winterthur disputes much of what the panel firms and insurance commentators assert – though it declines to comment in detail for fear of ‘litigating through the press’. Spokesman Markus Seitz says: ‘We consider that we are entitled to significant compensation to reflect the negligence of Rowe Cohen and the TAG scheme panel solicitors. We are as unimpressed by the points which we understand are now being made as we were with the argument on privilege, where the panel solicitors failed before the court. We are prepared to take the TAG litigation to trial.’


Clive Brett, a partner at Henmans in Oxford who is acting for Rowe Cohen, says the firm prefers not to comment on the ongoing litigation. However, as Mr Holland puts it, Rowe Cohen is ‘at centre stage’. He adds: ‘It was much involved in the whole process. It was there to vet these cases and only put forward [to the panel firms] those that it felt did have prospects of success, although there was also a duty on firms to filter cases.’


There has also been talk of a settlement, involving repayment of the AIL fee – which the Law Society has said should be made – in return for dropping the negligence action. It may even be that indemnity insurers would help firms pay this, despite their denial of cover, in recognition of the costs saved.


For Mr Holland, the root of the TAG scheme’s problems lies in the level set for the minimum prospects of success before a claim was taken on. He explains: ‘My view from the insurance perspective is that the threshold to take on these cases was too low. If a case had a 51% success rate, the firms were allowed to run it. That is a very low margin. In the traditional after-the-event market, insurers want a 65% chance of success.’


He adds: ‘We also know the TAG representatives were putting a lot of pressure [on firms] to take on more and more cases.’



Confident as the panel firms may appear about their chances of success, the litigation still poses a threat. As Mr Maher says: ‘There is one firm that I know of, that is a two-partner firm, with £250,000 exposure. They may be uninsured for all of it. There is a real potential for hardship on the high street.’