The small claims personal injury system is under attack as never before. Should insurers take over such cases from claimant lawyers? Jon Robins gauges reaction in the profession


Just before Christmas, the insurer Norwich Union, one of the most influential voices in the debate over legal costs, unveiled its vision of a future modern compensation system. Costs expert Kerry Underwood, senior partner at Hertfordshire firm Underwoods, is unimpressed. ‘This isn’t the future,’ he says. ‘In fact, it’s going back to a situation we haven’t seen in this country since the early 19th century.’


He is particularly incensed at the insurer’s recommendation that there should be no damages for claims of under £1,000 – an apology or a bunch of flowers should suffice, because people are not ‘expecting’ to be compensated for the bumps and knocks of everyday life.



The future of these smaller claims is very much in Norwich Union’s line of fire as the insurer that has been many a claimant lawyer’s bête noire reckons that cases below the £5,000 mark comprise some 70% of litigated cases and are disproportionately expensive in terms of legal fees.



‘There are real arguments about costs in lower-value cases,’ Mr Underwood acknowledges. ‘But these can be dealt with by fixed costs or indeed contingency fees, where the costs are related to the award.’ He reckons that Norwich Union has ‘gone off on a frolic of its own’ with its proposal to remove very small claims from the compensation system.


‘What they are saying is that poor people shouldn’t be allowed access to the courts,’ he continues. ‘What happens if you’re injured and you lose £1,000 wages? For a lot of people, that’s a lot of money. This is basically an apartheid system for poor people.’


Solicitor Dominic Clayden, Norwich Union’s director of technical claims, argues that the injuries in this category tend to be very minor (such as bruises and non-disfiguring cuts) but ‘across the board they are taking money out of the system that we believe can be better spent elsewhere.


‘They are also encouraging a mentality wherever there is a bump or scrape someone should pay compensation,’ he continues. ‘It’s fuelling a compensation culture.’ There are many claimant lawyers who argue that it is the insurance industry’s own scare tactics which are fuelling the perception of a compensation culture.


As well as calling for damages to be scrapped for claims under £1,000, Norwich Union proposes that no legal costs should be available for claims of up to £5,000 and the small claims limit to be upped to £5,000. It also calls for ‘the codification’ of the requirement that claimants allow the wrongdoer the opportunity to accept responsibility and agree the process by which compensation be assessed.


Why release such a report now? Mr Clayden explains it by saying that the access to justice reforms have now bedded down and the Civil Justice Council is working on the costs issues relating to the reforms. ‘But all this is really tinkering and putting sticking plasters over some of these issues,’ he argues. ‘We felt that it was time to stand back and say if people say they don’t like the system – and there seem to be a lot of people saying that – then the trickier bit is actually saying what they do want.’


Mr Clayden has been ‘disappointed’, but not surprised, by the resistance of some claimant lawyers to the ideas. But he adds: ‘I don’t believe that the current system is sustainable and the real challenge for them is: what’s their view of the future?’


The existing system of small-scale personal injury cases appears to be under attack from a number of different directions. While the Better Regulation Task Force (BRTF), the independent body that advises the government, found that a ‘compensation culture’ did not really exist in the UK, it concluded that the perception did and that we were living in a ‘have-a-go’ society.


As part of its solution, it recommended that the Department for Constitutional Affairs (DCA) should research the potential impact of raising the limit in the small-claims court which has remained £1,000 since 1991 and ‘justify any limit lower than £5,000’. In November, the DCA’s response agreed to look at raising the limit, but acknowledging the concerns about the potential harm caused by people not having access to lawyers in personal injury cases, did not take up the second part of the recommendation . ‘We therefore intend to consider other options,’ the response added.



A number of other options have also been floated in recent months. Claimant lawyers were shocked when the Master of the Rolls, Lord Phillips, argued that solicitors should be taken out of the loop for lower-value, less complex litigation where defendants are insured. The leading civil judge said that there was a ‘mass of small litigation’, including simple road traffic accident cases, where insurers could handle claims. ‘Why’s it so awful to suggest that the insurance companies take over, basically, the very small cases?’ he asked at a roundtable hosted by the Gazette’s sister publication, Litigation Funding, last April.



There has also been ministerial interest in the Personal Injuries Assessment Board (PIAB), which came into being in the Republic of Ireland in June 2004. It assesses how much compensation may be given to the accident victims pursuing a claim when there is no dispute over liability and delivers compensation without legal costs and lawyers. The board originally dealt with employer liability cases but quickly expanded its remit to cover all other accidents, excluding clinical negligence.


Finally, in late 2003, a review of employers’ liability compulsory insurance by the Department of Work and Pensions suggested that claimant personal injury solicitors should only have a role in checking settlements of lower-value workplace accident cases and then made to work under fixed fees in other cases to save costs.


Neil McLaughlin, vice-president of the Forum of Insurance Lawyers and a partner at M4 corridor firm Morgan Cole, maintains that the time is ripe for reform. ‘We see cases coming through our door where we think they should never even have reached a lawyer,’ he reports. ‘The moment it reaches the lawyer, costs spiral out of control. You can’t get away from the fact that overall legal costs to the paying insurer are about 40 pence in the pound for all claims.’


According to Norwich Union, a non-contentious claim with a settlement value of £5,000 will incur legal costs of around £2,000. ‘Once you start saying that legal costs need to be restricted or avoided altogether, you need to start asking claimant lawyers to justify their presence in the compensation system,’ Mr McLaughlin says. ‘What do they bring to the party?’


It is a process that defendant lawyers are familiar with. ‘We’re already doing work on fixed fees and our processes are geared towards stripping out the transactional costs,’ he says. ‘If we can do it and make a profit, why can’t the whole system do it?’


The Association of Personal Injury Lawyers (APIL) also recognises the case for change but not in the same way of the defence. ‘We have to move to cheaper and quicker systems for dealing with the lower-value cases,’ says president Colin Ettinger, a partner at national firm Irwin Mitchell. ‘The system at the moment is too cumbersome and has too much expense built into it.’ However, plans to bypass claimant lawyers and enable insurers to deal direct with the injured is a step too far for APIL.



Mr Ettinger argues that insurers’ track records hardly inspire confidence. Manchester-based firm Pannone & Partners recently reviewed 540 settlements of cases handled over a six-week period where the first offer was for a sum of less than £5,000, the possible cut-off point for a ‘small claim’ (see [2005] Gazette, 6 January, 10). Just 26% of first offers made by insurers was considered acceptable and, on average, first offers were increased by 53% before a final settlement was agreed. ‘There is no way that insurers are going to behave any differently with lay people,’ Mr Ettinger argues.



Claimant lawyers are also concerned about the fate of accident victims if they were left unrepresented to fend for themselves in the small-claims court. ‘Personal injury law might not be rocket science but for the lay person it is quite sophisticated, and if you aren’t familiar with the procedures and up against an experienced insurer, it could be very unfair,’ Mr Ettinger argues.


‘At the end of the day the insurers’ obligations are to their shareholders and they aren’t going to over-settle. They will end up exploiting [the claimant’s] vulnerability and, although £5,000 might not sound much, it’s a small fortune for some people, especially if they’re out of work.’


The apparent endorsement by the Master of the Rolls has gone down well with Norwich Union. ‘We were heartened by the fact that he believes we can do this because we believe that we can,’ Mr Clayden says.


He argues that there are mechanisms to deal with insurers that under-settle. ‘If necessary the Financial Services Ombudsman should be allowed to adjudicate,’ he adds.


He also reckons that most policy holders are more than happy with their experiences with insurance companies looking after, for example, their household insurance claims. ‘We aren’t trying to prevent people having access to lawyers. What we are saying is that they shouldn’t be their first port of call.’


Jon Robins is a freelance journalist