Negligence: insurer Allianz Cornhill will not launch action if firms pay 'investigation fees'

Insurer Allianz Cornhill has offered a deal to The Accident Group (TAG) panel law firms that could see it agree not to pursue a negligence action against the firms, the Gazette learnt this week.


Sources confirmed that the insurer has told firms it will not launch a negligence action against them if they agree to repay the 'investigation fees' that were funded by it, which were later held to be prohibited referral fees.


A negligence action could be worth around £2,000 per case, while the referral fees paid were around £350 per case. Allianz Cornhill Legal Protection (ACLP) claims to have a potential action against around 600 firms - although ACLP head Phil Ruse declined to comment on what discussions have taken place with the panel firms, and whether ACLP has offered a deal.


A group of Lloyd's insurers launched a legal action to recover the investigation fees last month (see [2006] Gazette, 13 April, 1). However, ACLP has confirmed that it will not join the action.


The £350 fees were paid to TAG sister company Accident Investigations Limited (AIL) by the panel firms. In 2004, the Court of Appeal upheld a ruling that these fees - which were ultimately funded by the after-the-event insurers - could not be classed as disbursements, which insurers would have been liable to pay, but were referral fees, which were prohibited at the time.


In addition to the AIL litigation, insurer Winterthur launched a negligence claim against the panel firms in 2004, alleging that they failed to vet and monitor cases handled under the TAG scheme properly. The firms are vigorously defending this action. ACLP has not yet launched its own negligence action.


Steve Holland, executive director of broker Alexander Forbes Professions, said that Winterthur could potentially decide to offer the same deal as ACLP. He said: 'Allianz Cornhill has not got as large a caseload as NIG/Winterthur, but if Winterthur were to see this strategy as a way to get some money, it has got to be good for everybody.'


He added that although the AIL fee is not covered by firms' professional indemnity insurance, they may be able to negotiate a deal with insurers: 'It will be down to the individual panel firms to try to agree that their professional indemnity insurers will make a contribution to the AIL fee. Insurers would be saving defence costs and potential payments under the policy in the negligence action.


'[But] insurers have previously denied coverage for the AIL fee, [and] even if they agree to some contribution, they may say the excess applies, which may mean they would not pay out anything, depending on the size of the firm's self-insured excess.'


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