As post-TAG litigation looms, Glenda West advises firms involved with claims managers to collate information and keep full records

They say that the road to hell is paved with the best intentions. Could anyone in the then Lord Chancellor's Department have foreseen that the growth in the no win, no fee 'compensation culture' and The Accident Group (TAG) debacle would result from the government's desire to cut the legal aid bill?


With the demise of legal aid, many law firms that had relied on this work for a sizeable proportion of their income needed to find an immediate source of new fees. The arrival of claims management firms such as TAG appeared to solve their problem. Uniquely, this scheme and others like it delivered personal injury cases to lawyers fuelled by TAG's sales-led culture.


Since TAG became insolvent, one insurer (Winterthur Swiss Insurance Company) which underwrote the after-the-event policies is alleging that many of the personal injury cases should never have been taken. There is the real prospect of a £70 million negligence claim against up to 800 law firms. This could be the tip of the iceberg if other insurers on the TAG scheme follow suit.


The outcome of any eventual litigation is unclear and as the case is scrutinised, the more complicated the issues become. Many law firms are alarmed that payments they made to TAG's investigation arm, Accident Investigations Limited, have been deemed illegal 'referral payments' rather than disbursements. What many commentators appear to have overlooked is that they may face a far bigger issue with negligence claims for lost personal injury cases. There is no doubt that many of TAG's former panel firms need to consider carefully where their liabilities may lie.


Some firms could also face difficulties on the scope of their professional indemnity insurance cover. At this point, it is unclear whether claims will be considered on an aggregate basis or an each-and-every claim basis. This could leave some firms facing significant financial losses on their deductibles (policy excess).


Even worse, some smaller firms with just the £1 million compulsory professional indemnity cover in place may find they reach the limit of their policy cover. There is also a possibility that claims to recoup lost referral fees from insurers may fail as they relate to an illegal, rather than a negligent, act.


To bring some clarity to the situation, firms should liaise closely with their brokers to establish the extent of their insurance cover. It is worth noting that the qualifying insurers are already taking counsel's opinion on the extent of their liability under the policy wording. Law firms that may have to make claims against their professional indemnity cover would be wise to take the same precaution.


What is absolutely clear is that any law firm that has taken on conditional fee agreement work from any of the estimated 350 claims managers - not just TAG - should act immediately to collate all information relating to all of its personal injury cases. Firms active in personal injury work that are unable to furnish this information at the time of their indemnity renewal may find insurers somewhat unenthusiastic about their risk. Firms should also take immediate steps to notify any cases where a claim may arise; again their brokers should be able to advise the extent of notification to ensure that only appropriate circumstances are reported.


No one knows what the outcome of the TAG debacle will be but firms should act now to put themselves in the best possible position to fight their corner by taking strong, positive action to collate every fact available to them and notifying their brokers and insurers early.


Glenda West is claims director at Alexander Forbes Professions