Judge puts brakes on claims farmers

The senior costs judge last week reined in the excesses of claims management companies after deciding that less than half the 1,250 insurance premium paid by clients of Claims Direct is recoverable.

The outcome of a batch of test cases - which could affect 100,000 unsettled actions - was hailed by defendant insurers' lawyers, but the claimants' lawyers refused to rule out an appeal.

Judge Peter Hurst held that of the 1,250 premium, excluding insurance premium tax of 62.50, 451.55 was allowed as the amount paid by Claims Direct to the underwriters, plus 110 for Claims Direct's commission, 30 for insurance services and 29.58 for tax.

He rejected claimants' requests for higher claims managers' costs, but accepted that the actual premiums were more than the 100 to 200 the defendants had claimed.

Andrew Parker, the partner with City firm Beachcroft Wansbroughs who acted for the defendant insurers, welcomed the decision.

He said: 'It is particularly encouraging that he also decided that no after-the-event premium will normally be allowed where liability has been admitted by the liability insurer before the claimant's policy was taken out.

'In broad terms, sums paid to underwriters for insurance services are recoverable but sums paid to claims management companies, even if described as premium, are not.'

Howard Colman, a partner with London firm Colman Coyle, who acted for claimants, denied that the award of 621 was a victory for the defendants.

Nonetheless, he said the result was slightly unfair and that Judge Hurst had accepted the need for claims companies.

An appeal is being considered, he said.

Mr Parker said an appeal would delay settlements and create more uncertainty.

David Hartley, director of the Law Society-backed referral service Accident Line, said: 'We think our premiums can stand up to the scrutiny of what is reasonable under the findings of the costs master.

The lesson for claims management companies is that the days of charging extravagant commissions to fund marketing campaigns is over.'

Claims Direct was in the process of launching a new business model before it went into receivership earlier this month.

A spokesman for the receivers, Deloitte & Touche, said the firm had not yet fully considered Judge Hurst's decision.