Lord Young’s report in October 2010 led to the 2011 consultation in relation to the Jackson proposals. It will be recalled that much of the consultation took place between the government and the heads of the motor insurance industry. Claimants’ representatives were largely excluded from those meetings.
The trigger for all of this was the rapid rise in insurance premia, particularly for motor insurance, the blame for which has been laid at the doors of claimants and their solicitors. Lord Young in his executive summary to his report said: ‘...the "no-win, no-fee" system gives rise to the perception that there is no financial risk to starting litigation; indeed some individuals are given financial enticements to make claims by claims management companies (CMCs) who are in turn paid ever-increasing fees by solicitors. Ultimately all these costs are met by insurance companies who then increase premiums.’
Later in his report under the heading Compensation Culture (which he admits is a problem of perception rather than reality!) he says: ‘The changes (brought about by the Access to Justice Act 1998 introducing CFAs and ATE premia) encourage the belief that claiming compensation for even the most minor accidents is quick and easy whilst at the same time incentivising lawyers to rack up high fees in the knowledge that they will be covered by the losing party.’ Lord Young went on to say in his executive summary: ‘The system must be fair and proportionate without placing excessive financial burden on the losing party.’
About 80% of personal injury claims arise out of road traffic accidents. The facts on referral fees and claimants’ legal costs do not support the assertions in Lord Young’s report which have led to the government’s proposals on the Ministry of Justice RTA Portal and fixed fast-trial costs.
We know from Professor Fenn’s representations to the government on the vertical and horizontal extension of the MoJ (with which he disagrees) that about 50% of claims submitted through the portal are settled in the portal. This probably reflects what has always been the case of the standard personal injury protocol that 50% or thereabouts of cases result in proceedings being issued.
The fixed recoverable costs that were introduced for the standard personal injury protocol in October 2003 have not increased since. The low-value personal injury protocol was introduced in April 2010 and these fixed fees were effectively reduced by up to 50%. We have seen no reduction in insurance premia to reflect the savings achieved since the introduction of the LVPIP but leaving that on one side for a moment, where is the evidence in relation to 50% of road traffic accident cases that solicitors have been incentivised to rack up high fees? Solicitors’ fees haven’t increased in 50% of cases for over nine years so why have insurance premia rocketed?
Could it be that it’s the ‘racking up of excessive costs’ in issued cases that is the cause of the problem? It is submitted that that can’t be true either. At the conclusion of issued cases, the defendant insurer will either agree the claimants’ costs presumably because they accept that they are reasonable or they have the opportunity to have the costs assessed by an independent specialist costs judge who will only order the defendant to pay such costs as are proportionately and reasonably incurred. Any doubt as to whether the costs are proportionate or reasonably incurred must be resolved in favour of the insurance company.
How can it be then that Lord Young in his report says that the current system places an excessive financial burden on the losing party?
If defendants are paying too much in costs for issued cases then the answer probably lies in the report of the Senior Court Costs Office (SCCO) prepared in February 2011 and which was submitted to the government as part of the consultation in which masters Campbell, Haworth and Leonard made the point that they had dealt with many bills in which the costs had been significantly, but avoidably, increased by the conduct of the defendants. They said: ‘In some cases the litigation is conducted with hostility, thereby requiring claimants to address each and every point. In others, defendants delay thereby causing unnecessary additional costs. In others still, settlements are left until the last minute thereby often triggering the third stage of a three-stage success fee (always 100%) whereas had the defendants opened the negotiations earlier, the figure would have been significantly less.’
In the government’s response to the consultation that was published in March 2011, the SCCO report was not mentioned anywhere other than in the appendix listing contributors.
It appears that the government’s proposals on portal and fast-track trial costs are a reward for defendant ineptitude. They are certainly a licence to defendants to continue to defend cases in the way in which they have done thus far incurring costs way in excess of the proposed fixed fast-track trial costs with absolutely no mechanism to rein in or curtail that conduct. Readers of this article will be aware that since the introduction of the LVPIP, defendant conduct hasn’t changed. They raise points of procedure which are just wrong and they have never as far as I am aware won a single stage-three hearing.
Lord Young in his report on the issue of referral fees said: ‘Evidence from the insurance industry shows that over 15% of the total cost of a claim goes to pay for referral fees and adds nothing to a claimant’s damages. This burden cannot be sustained especially given the constant increase in referral costs.’
This quotation and the earlier quotation cited above from Lord Young’s report suggests that the insurance industry is funding referral fees as if they were some sort of additional cost. That is demonstrably untrue. Clearly the fixed fees recoverable for non-issued cases have not been increased to cover the cost of referral fees and indeed the LVPIP costs were specifically agreed by both sides of the industry on the basis that no account would be taken of referral fees. In so far as issued cases are concerned I challenge anyone in the government or opposition, or from the motor insurance industry, to identify a single case anywhere in England and Wales where any judge has ever ordered a defendant to repay as part of a claimant’s costs any referral fee. It just hasn’t happened.
The rules on assessment do not allow any such fee to be recoverable. Referral fees are simply part of a solicitors overhead. It is a marketing expense and it is in fact a very well-targeted marketing expense. To reduce the portal costs and the fixed fast-track trial costs at least in part by reference to the banning of referral fees is to effectively neuter law firms ability to market their services.
The chief executive of Admiral Insurance, Henry Engelhardt, in the Sunday Telegraph on 24 July 2011 said: ‘What’s been happening with motor premiums is that they have been going up for about two years now and they probably won’t go up for another five years... This is the pattern of the market. In 1999 and 2000 premiums went up by 25% each year. Then they went up a little bit in 2001 and they didn’t go up again until 2009, it’s a very strange market place.’
The increase in premia has got nothing to do with referral fees. The government has completely misunderstood the claimant/solicitor business model. The costs in the LVPIP are only one of three measures of legal costs which a defendant may end up paying. The standard personal injury protocol costs are up to twice as much as the LVPIP costs and costs for issued claims are significantly higher. Paying the level of referral fees that they do (which is part of the solicitor’s overhead), solicitors are gambling on a significant proportion of cases dropping out of the LVPIP so that they can make a profit. To simply assume that the LVPIP costs produce a profit after deduction of referral fees is a complete nonsense. Reduction in costs for issued cases - which these proposed fast-track fees represent - is draconian and completely ignores the contents of the SCCO report to which I have referred above.
The LVPIP was designed to provide a speedy and efficient settlement of very simple straightforward road traffic accident claims. It is now clear that the purpose of the LVPIP is to settle every claim under that procedure where liability is admitted. The Civil Procedure Rule Committee has been asked by the MoJ to prepare new draft protocols to reflect broadly stated policy intentions.
Under the current RTA protocol, the number of medical reports is limited to a maximum of one initial medical report from four different disciplines, two of which are only on the recommendation of one or both of the first two medical experts (see rule 7.5). That rule now goes and it is replaced by rule 7.1a which reads: ‘It is expected that most claimants will obtain a medical report from one expert but additional medical reports may be obtained from other experts where the injuries require a report for more than one medical discipline.’ In other words, the number of medical reports is now unlimited.
The proposed protocol introduces a new rule 7.6a which provides for non-medical expert reports.
This presumably will include cost of care reports, engineering evidence and that sort of thing, in other words the kind of evidence that would normally have led a claim to being dropped from the portal pursuant to rule 7.67 on the grounds that the claim was not suitable for the portal, (for example, because there are complex issues of fact or law). The protocol now provides for witness statements to be obtained. Rule 7.6b says that in most cases witness statements will not be required but one or more statements may, however, be provided where reasonably required to value the claim.
Who will decide whether they are reasonably required to value the claim or not? This is an area for satellite litigation. Defendants will try to argue that they are necessary in every case. They already ask for copies of a clients statement in the current portal!
The fixed fees for the portal have been reduced; this is said to take account of the ban on referral fees. The government has clearly taken an average referral fee of £650 and knocked that off the current stage one and two payments. Where is the cost of this additional work anticipated by the proposed amendments to the protocol to come from?
The government’s approach to this whole issue of costs certainly so far as it relates to road traffic claims is intellectually dishonest. There can be no other explanation for it. The banning of referral fees will prevent large numbers of potential claimants from pursuing their claims. I am thinking in particular of those members of the community for whom English is not their first language and find accessing legal services, otherwise than through CMCs which serve their communities, very difficult. Access to justice would clearly be reduced.
We will also see, if these proposals are implemented, an end to third-party capture. Many will think this a good thing but it may put claimants in an even worse position. At the moment it is in the interests of insurers and their shareholders to intercept claimants before they get access to legal advice so that they can undersettle claims with unrepresented claimants and avoid legal costs. These proposals - if implemented - will clearly severely limit claimants’ prospects of getting access to legal advice.
Third-party capture will become unnecessary in my view. Road traffic insurers have only two obligations for the purposes of this discussion. They have a fiduciary duty to their shareholders to maximise a return on the investment of those shareholders. They also have a duty to their policyholders to indemnify them by reason of Section 151 of the Road Traffic Act in respect of any judgment which a claimant may obtain against them. Other than indemnifying their policyholders in respect of any such judgments, insurers have no obligations to claimants.
I predict that after the implementation of these proposals (for they will be imposed upon us) claimants will simply be told by insurance companies that they have no claim and that nothing will be paid out to them unless and until the claimant obtains a judgment against the policyholder. We can expect insurance company shareholders to remind their claims directors of their very limited obligations to the claimants and that the resultant savings will go into the pockets of the shareholders.
We can expect the ineptitude of defendants to continue. This means that the success fees payable by claimants will be unnecessarily high even though they will now be capped at 25% of damages. There is a real risk that they will be paying the full amount of the statutory maximum unless and until anything is done to curb defendant ineptitude.
Certainly for road traffic accident claimants, these proposals are a disaster. The consumer detriment of these proposals is staring everyone but the government in the face. The government has turned its back on claimants.
Anthony Learmonth is partner at Coyne Learmonth LLP