Hundreds of personal injury firms working under The Accident Group (TAG) scheme are at the centre of a £70 million legal action over their alleged negligence and are also facing up to the uninsured pay back of referral fees - with commentators predicting that the affected firms will also struggle to find professional indemnity cover in the future.

The fears came to light after TAG underwriter Winterthur Swiss Insurance instructed City firm Barlow Lyde & Gilbert (BLG) to serve draft particulars on most of the 700 firms it maintains negligently accepted 'bogus or unwinnable' claims, as well as TAG's main vetting solicitors, Manchester-based Rowe Cohen, which denies any wrongdoing. TAG notoriously collapsed in May 2003.


BLG argues that more than half of the thousands of claims TAG generated should have been rejected by the firms. Those that were lost cost Winterthur an average of £1,700 per case. It received £300 for every one that succeeded.


Glenda West, claims director at indemnity broker Alexander Forbes Professional, said: '[Indemnity] policies will respond to the negligence side of things, and there are likely to be test cases on this.'


She urged claimant firms and insurers to 'work together in an orchestrated way' to resolve the case with the minimum cost. BLG has given firms three months to negotiate an out-of-court settlement.


The developments follow last year's separate Law Society guidance urging firms to repay money to clients charged for the services of TAG investigators, Accident Investigations Limited, because the £310 payments in each case were found by the courts to be illegal referral fees.


A spokesman for indemnity insurer St Paul Travelers said: 'In our view, referral fees are not covered by indemnity policies.' He said future insurance prospects would 'depend on the whole pattern of a firm's claims history'.


Costs consultant Gary Barker said that as a breach of the Society's rules had occurred, TAG firms would probably have to deal with any losses themselves. 'With such a poor claims record [if the Winterthur case succeeds], they may find it virtually impossible to be covered in the future,' he added.


Martin Cockx, a partner at Manchester claimant firm Amelans, expressed wider fears that many firms were making the same mistakes as their TAG counterparts by continuing to use claims farmers that received 'kick-backs' by insisting panel solicitors used specific insurance products and medical agencies.


He warned: 'Any solicitors taking work from [claims managers] leave themselves open to a challenge from liability insurers that a certain percentage of the after-the-event premium and medical fee should be disallowed, as they are not true premiums or medical fees.'


Andrew Parker, head of strategic litigation at leading City defendant insurance firm Beachcroft Wansbroughs, said: 'There are extra layers that get built into the process through the premium and the medical and other investigation fees that add nothing to the process and do nothing for client care or the claimant's prospects of success.'


Ms West agreed that with 350 claims management companies still in existence dealing with 'loads' of different insurers, 'solicitors could be caught in the middle of a big battle'.


Mr Barker warned that the situation could lead to a big change in the claimant personal injury market. 'Many firms will go under, but we will also see some drop personal injury work or merge,' he predicted.



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