Anita Rice traces how the accident group litigation led to tighter controls on claims management companies


'The Accident Group (TAG) litigation sits over the market-place as a warning of what can go wrong if you do not have a properly regulated market,' says Henry Bermingham, president of the Forum of Insurance Lawyers and a partner at Midlands firm Berrymans Lace Mawer.



As reported last week, the TAG litigation involving more than 600 personal injury firms has now settled, finally bringing what had threatened to be the biggest ever claim against the profession to a somewhat muted close (see [2008] Gazette, 7 February, 3).



The overall settlement figure is rumoured to be around the £30 million mark and, if confirmed, falls short of the £100 million or more that insurer Winterthur was originally thought to be pursuing in its group action against TAG panel law firms. Richard Spafford, a partner at Reed Smith Richards Butler who represented Winterthur, confirmed that the litigation has settled but refused to comment further.



TAG - a claims management company that sought out personal injury claims on a 'no win, no fee' basis which were then passed on to selected lawyers - folded in 2003 with debts of more than £100 million.



There were two strands to the subsequent litigation. The first related to the repayment of an 'investigation fee' paid by law firms to TAG sister company Accident Investigations Limited, which was later ruled to be a then-illegal referral fee. The second action alleged that TAG panel firms were negligent in failing to vet and monitor the personal injury claims properly - something the firms strongly denied.



While all involved may be relieved that the dispute is now resolved, with the majority - if not all - of the parties having now settled both actions, the fallout from the TAG fiasco has been monumental. The rise of the more unscrupulous so-called claims farmers has undoubtedly tarnished the reputation of personal injury lawyers, and made for a bruising time on both sides of the personal injury divide.



Martin Cockx, claimant personal injury partner at Manchester firm Amelans, puts it this way: 'When I'm in my local pub, sometimes I would rather tell people that I'm a taxman or a rat catcher, because they think we are just dirty ambulance chasers.'



Claims management companies sprang up after the Access to Justice Act 1999 withdrew legal aid provision for most personal injury claims and made 'no win, no fee' conditional fee arrangements (CFAs) the norm.



Lawyers, claims Mr Cockx, were not equipped to compete with the aggressive advertising methods used by the claims farmers who sprung up in the wake of the Act - some of whom were subsequently found to be less than entirely ethical about the manner in which they recruited claims. They were also less than transparent about fees they charged for referring cases.



'Solicitors were unable to market their services, and that lack of marketing skills got them in this mess and provided an opening to these parasites,' says Mr Cockx. 'That situation was exploited by some people who were unregulated and didn't have to comply with the regulatory rules that came in last year.'



Furthermore, says Mr Cockx, many personal injury lawyers became dependent on claims-handling firms for work. They then came under pressure to take on the type of high-risk cases that were the eventual undoing of TAG and one of the causes of action in the Winterthur litigation.



Mr Bermingham says the TAG era generated 'a lot of poor quality litigation' and 'had an effect on the defence market because it created a lot of work and a lot of money was wasted dealing with those claims'.



Martin Bare, president of the Association of Personal Injury Lawyers, says TAG's business model became viable because the government decided to make additional fees recoverable from losing defendants. That created the environment in which claims farmers could thrive, something many observers believe the government and practitioners simply failed to predict.



After all the bloodletting of recent years, Mr Bare points out that TAG did 'directly lead to the regulation of claims management firms', which he describes as a positive move if not yet developed to an entirely satisfactory level.



Kevin Rousell, head of the Ministry of Justice's claims management regulation unit, says that while there is still work to be done on the regulation of claims managers, progress has been made. He says there are now strict rules in place on information provided to clients and referral fees.



Some think the personal injury market has irredeemably suffered from that period of intense commoditisation. 'The key issue still remains, and that is whether referral fees are appropriate. My view is that they are not,' says Kerry Underwood, personal injury lawyer and senior partner at Underwoods in Hemel Hempstead.



Taking an overly-processed approach to the market will eventually result in a shortfall of lawyers who are able to take on complex cases, he says. 'What you will lose is what is actually valuable about the rule of law, independence, the people who will fight... Some things are just not the same as selling a can of beans.'