No win no fee reforms divide insurers

The Government plans to make claimants who win their court case pay their own solicitor's "success fee" and the premium for any After-The-Event (ATE) insurance out of the compensation they are awarded.

The decision comes despite disagreement from around 70% of those who responded to the Ministry of Justice's November 2010 consultation paper.

Other measures to be implemented by the Government include a 10% increase in general damages; a 25% cap on the success fee that can be deducted from damages in personal injury cases, and a system of 'qualified one way costs shifting' (QOCS). This will mean that in almost all cases personal injury claimants who lose their action will not be liable to pay the defendant's legal costs.

Claimant representatives and after-the-event (ATE) insurers, however, maintain that abolishing the recoverability of success fees and ATE premiums will restrict access to justice and put claimants' damages awards at risk.

Defendant representatives and general liability insurers, on the other hand, are in favour of the changes, pointing to the disproportionate costs caused by the current regime where, according to one insurer, claimant's costs in personal injury claims in 2010 represented, on average, 142% of the compensation received.

In a response paper published this week the MoJ said its reforms were necessary to rebalance the civil litigation system in England and Wales:

"Some weaker cases which are currently brought will be deterred," (80-page / 1.05 MB PDF). "Taken as a whole, the package of measures will restore a much needed sense of proportion and fairness to the current regime – not by denying access to justice, but by restoring fair balance to the system. Defendants should benefit from more proportionate total legal expenses, with legal costs for the NHS falling by around a third."

In a separate consultation paper also published on 29th March, the MoJ set out further proposals for actions brought in county courts, including raising the small claims limit so that more cases are dealt with quickly on an informal basis, and extending the scope of the streamlined process for dealing with low value road traffic accident personal injury claims introduced in April 2010.

Recoverability

The reforms implement key recommendations made by Lord Justice Jackson in his January 2010 report on civil litigation funding. Central to those recommendations was the issue of recoverability of success fees and ATE premiums.

At present many civil actions (and the vast majority of personal injury claims) are brought on a 'no win no fee' basis under a conditional fee agreement (CFA) with a lawyer, backed up by ATE insurance which covers the claimant against the risk of having to pay the defendant's legal costs if the claimant loses the case.

If the claimant wins, the defendant (or its insurers) must, in addition to the claimant's solicitor's basic costs, pay the lawyer's success fee and an enhanced ATE premium. But if the claimant loses the case, no ATE premium or success fee is payable and the ATE insurance will cover the claimant's liability to pay the defendant's legal costs. As a result, cases can be brought at no financial risk to the claimant.

Under the Government reforms, however, recoverability will be abolished and claimants will have to pay the success fee and premium themselves. There will be one limited exception. In clinical negligence cases, ATE premium relating to the cost of expert reports will remain recoverable.

In addition, in personal injury cases, the amount that can be taken out of a claimant's damages to pay the success fee will be capped at 25%. This means damages covering care and loss will be ring-fenced from any success fee deduction, protecting future care costs.

As part of the package, the Government will also introduce a 10% increase in 'non-pecuniary' general damages for all claimants, such as damages awarded for pain, suffering and loss of amenity.

Responses

Seventy one per cent of those who responded to the November 2010 consultation paper disagreed with the proposal to abolish recoverability of success fees, with views clearly divided along claimant and defendant lines. Similarly, 69% of respondents thought ATE premium should remain recoverable from the defendant.

There was more consensus in favour of the 10% increase in general damages, although in most cases this was because respondents thought damages awards are too low.

Even though it will increase their compensation bill, however, most general liability insurers who responded supported the increase as part of an interlocking package of reform.

Qualified one way costs shifting

QOCS will remove the risk that, if he loses the case, a claimant will be liable to pay the defendant's costs - except in limited circumstances.  Those are: 'exceptional behaviour' (where the claimant has acted fraudulently, frivolously or unreasonably) and where the claimant is very wealthy.

The proposal has been criticised because claimants will not know for certain from the outset whether or not they will qualify for QOCS.

At the moment, the Government is only proposing to introduce QOCS for personal injury cases including clinical negligence claims. The normal costs principle that the loser pays will continue to apply in other cases.

One consequence - not unwelcome to the MoJ - is that QOCS will drastically reduce the need for claimants to take out ATE insurance, which covers them against the risk of having to pay the defendant's costs. The paper adds: "When they do, they will pay the premium themselves, which will encourage the market to set more reasonable premiums".

Other measures

The MoJ plans to tighten up the 'part 36' rules on settlement offers. An additional sanction (equivalent to 10% of the value of the claim) will be payable by a defendant who does not accept a claimant's reasonable offer that is not beaten at trial.

There will also be a new general rule that only reasonable and proportionate costs may be recovered from the losing party, taking into account the value, complexity and importance of the claim.

In addition, the Government proposes to lift the current restriction on contingency fees (damages-based agreements or DBAs) in the courts of England and Wales.

DBAs are another type of 'no win no fee' arrangement where the lawyer's fee is related to the amount of damages awarded rather than the work done by the lawyer. If a claimant wins the case, the costs recovered in the normal way from the other side would be set off against the 'DBA fee' due to the claimant's lawyer. In personal injury cases, the amount lawyers could deduct from the damages would be capped at 25%.

Next steps

Changes to the CFA regime will require the Government to pass primary legislation while some of the other changes can be effected by amendments to the court rules.

The paper does not include a timetable for this, but the Government says it wants to see the measures implemented together, as a package.

Football player who claimed £1.3m for car accident injuries jailed after he was caught playing for club

An amateur footballer has been imprisoned for a year after trying to scam a £1.35 million insurance pay-out for injuries received in a car crash, despite being fit enough to turn out for his club.

James Shikell, 31, was a passenger in a car accident in 2002 and three years later was awarded the personal injury claim by the Motor Insurers' Bureau.

Shikell, a midfielder who has played nine games for Doncaster side Edlington Rangers this season, claimed in December 2005 he suffered memory loss, severe fatigue, poor co-ordination and an aching neck and ankles. 

And as part of his claim he received £30,000 - and out of the total claim, that is all he received.

In a witness statement Shikell had said: ' I am deeply saddened that as a result of the injuries I sustained in the accident I am no longer able to play football.

'I still love football and not to be able to play as I did before is very depressing for me.' 

He was found out in 2008 when investigators filmed him playing a 90-minute game and discovered he had played every match that season.

As a result Shikell, from Balby Doncaster was jailed for 12 months for contempt of court.

In addition his father, Robert Shikell, received a year's imprisonment for supporting his son's claim. And a third man, Simon Fennell, was fined for providing a false statement in the personal injury claim.

Judge Penelope Belcher, presiding at Leeds Combined Court, found Shikell guilty of 14 of the 16 counts against him. 

She said she was satisfied beyond all reasonable doubt that the only explanation for him telling the lie was to increase the likely award of damages in the personal injury claim.

She said: 'I recognise that it was down to this young man's grit and determination, together with the love and support of his family, that he made such a good recovery from his injuries and their effects upon him and that he is now largely able to lead a normal existence. That is very much to his credit.'   

But she added that did not alter the fact that he was willing to lie for the purposes of the legal proceedings.   

She said: 'It is James Shikell's case that his intention when he lied about his football activities was not deliberately to seek to increase the award of damages and he denies being motivated by greed.'  

Elaine Chapman, a partner at law firm Weightmans who advised the Motor Insurers' Bureau in the defence of the personal injury claim and in bringing the contempt of court claim, said aftgerwards: 'This landmark judgment sends a clear and resounding message that high value cases are no longer the no lose gamble for individuals making fraudulent claims. 

'The custodial sentences imposed reflect the zero tolerance approach of the judiciary towards insurance fraud.'  

Motor Insurance Bureau chief executive Ashton West added: 'This custodial sentence will be a deterrent to those who seek to defraud MIB and therefore every insured driver in Britain.'