Roundtable - Legal Reforms: Jackson reforms: First impressions

The highly anticipated civil justice reforms have the potential to overhaul the way claims are managed by the legal and insurance industries. Seven weeks after the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 – the primary legislation encompassing key proposals from Lord Justice Jackson’s review of civil litigation costs – Post, in association with Hill Dickinson, brought together specialists from the corporate, insurance and legal sectors to discuss whether, in these early days, the reforms are working as they were intended. In a far-reaching roundtable debate, the group considered what will determine, and how to quantify, the reforms’ success, the approach of the judiciary, the unintended consequences and any outstanding issues.

The general consensus around the table towards the recent reforms – including a ban on referral fees and the recovery of after-the-event insurance premiums from defendants, as well as the introduction of damage-based agreements and qualified one-way cost shifting under the Civil Procedure Rules – was one of cautious optimism. However, participants said much depends on how fully the changes are enforced over time and how successfully they are complemented by the reforms still to be implemented. These include the extension of the personal injury claims portal to encompass higher-value motor claims and employers’ and public liability, extension of the small claims limit to £5000 and the Ministry of Justice’s whiplash consultation.

Considering the benefits to stakeholders, Carolyn Mackenzie, complex claims and strategy director at RSA, said: “Obviously the focus on speeding-up claims settlement and providing access to justice to claimants at a more proportionate cost is good for the premium‑paying consumer.”

But she expressed concern around a “loss in momentum” in the progress in outstanding areas, which was echoed by Doug Askin, AIG technical claims manager, who added that “on paper” the reforms will drive certain benefits for insurers, government and insurers but there is “still lots to do to reduce the cost of civil litigation”.

While David Powell, Lloyd’s Market Association underwriting manager, attributed a reduction of 5% to 10% in motor premiums over the last 12 months to anticipation in the market of “savings in the pipeline”, he suggested policymakers might be disappointed the reforms have not had a “massive effect on premiums”. He asserted the underlying reason for this is that there are still too many claims and motor insurance remains unprofitable.

Reducing the number of claims rather than simply cutting cost would have the greatest impact to the industry, agreed Ruth Lawrence, partner and head of insurance at Hill Dickinson. However, she added: “Achieving this would be really hard, because there is such a culture within the country, and such an industry behind those claims.”

Lawrence suggested the reforms should shift the focus from costs to damages, noting: “We’ve all had cases where you pay a relatively small amount in damages and a lot in costs, and one would hope [the reforms] should bring
back proportionality.”

John Windsor, Marks & Spencer head of insurance, emphasised the need to protect claimants’ access to justice, noting he hopes the reforms will reduce “some of the more ridiculous claims all of us see from time to time” rather than the genuine ones.

Proportionality problem
But considering how the test of proportionality regarding claims costs will work in practice, Paul Edwards suggested the answer is far from clear. “We will have to wait and see because judges haven’t been given much training on it,” he said. “I believe full-time judges have only had about four-and-a-half hours’ worth of training on the reforms, and no definition of proportionality is being provided. So we’ll see quite varied results depending on the mood of each judge.”

He added: “The court can’t do anything about costs that have already been incurred, although it can comment if it thinks they’re too high. But the court is supposed to take ‘push out’ into account when making projections. Judges are supposed to challenge parties’ decisions to ask for 10 witnesses if it’s more proportionate to have three.”

Edwards conceded the reforms have the potential to end “justice at any cost”. “The days are gone when you could throw the kitchen sink at a case, win and expect to recover your costs,” he said. He questioned whether more cases will be fought now that the “maximum extent of the liability is clear” and if the reforms empower clients who would previously have settled out of fear of the costs, regardless of the merits of the case.

Angela Doran, insurable risk department claims manager at Tesco, raised the potential for satellite litigation and urged insurers not to forget genuinely injured claimants. She added: “The system will be good for claimants who will get their money earlier because claimant solicitors now have a unit cost per case.” Doran noted there will be a “sweet spot” in the fixed-cost regime on cases under £25 000 for solicitors to maximise their unit profit cost. She added claimants should get their damages quicker given their legal representatives “no longer have the Dickensian way of charging on an hourly rate when they have complex case-management systems that make an enhanced profit ratio because of automation”.

Claimant focus
Agreeing with Doran, Windsor added: “The reforms will hopefully bring a lot more common sense and put the focus back on the claimant rather than on the games we play on costs and trying to score points with different teams of lawyers. There’s going to be a lot of fun and games in the first couple of years until it settles down.”

Frances Stapleford, Generali assistant vice-president for claims, agreed speed of settlement is a critical benefit for claimants, while Windsor said claimants will be “more involved” in their claim.

Askin complained that, historically, claimants have been too removed from the decision-making process, adding: “With QOCS and the funding arrangements, Jackson has made it important for the claimant to be involved. So, by default, you should see quicker life cycles and better trends and behaviours emerging.”

Emphasising that the claims portal is having the desired effect in the motor sector by reducing claims life cycles and premiums “by a smidge”, Powell added: “As we extend the value bracket for motor and move into casualty, we will see more effort to get reasonably simple cases out of the portal and that’s obviously a big deal.

“Now that costs have been significantly slashed, claimant lawyers have a direct financial incentive to get their cases out of the portal wherever possible.”

Doran suggested there is still a role for the ATE market to play in protecting against QOCS/Part 36. “For lower-value claims, by the time the claimant has to pay 25% of their damages and then ATE, they might decide they would prefer to go direct to the insurers, or clients if they have large deductibles,” she said. “This could result in more unrepresented claims arising in the lower-value band, as claimants don’t want to give away their damages to lawyers.”

Edwards pondered whether this would lead to more consolidation in the claimant legal sector, asking: “Are we going to see some firms saying they can make this work on a scale basis and actually expand?” According to Askin, firms that do not take any of the claimants’ damages and “just work the models to maximise the profit under the fixed fee” are already emerging.

“As long as lawyers have the right model, they can maximise the £500 now in motor and there’s no need to take the client’s damages,” he said. “It’s a good way of incentivising claimants to come to them on the back end of the referral fee ban. Based on that, we will see a lot of consolidation among claimant law firms in the next 12 months. Smaller practices will potentially struggle as they may need to reach into claimants’ damages to help top-up some costs.” Powell added that creating market forces for legal fees was “exactly the intention of the reforms”.

Mentioning that claimant law firms are offering cash up front or iPads as an incentive to potential customers, Mackenzie said: “An unintended consequence of the reforms is that the relationship between claimant and lawyer has to be very carefully managed when it comes to funding. I’m hearing that market forces are at play and claimants are approaching different law firms and asking if they make deductions from damages. For that to be happening so soon into the reforms is incredible.”

Askin agreed that for claimant lawyers to start taking a percentage of damages from claimants that have lived through the post-Woolf world of no-win, no-fee “is potentially quite a hard sell”.

Returning to where the responsibility lies for driving the reforms’ success, Doran agreed it “sits in the hands of the judiciary and how it interprets the rules”. Lawrence added: “Certainly in the first decisions we’re seeing the judges are being quite harsh.” However, she cautioned that while judges may be taking a hard line initially, there is a danger that might dwindle over time.

Edwards offered a handful of examples of cases that have been struck out, including one where the trial bundle was filed a day late and another where the claimant side had not complied with a few minor technicalities and was refused an adjournment and charged costs. He compared the scenario to the “Singapore experience” in which he explained thousands of cases were struck out for the “tiniest of default” for about 12 months. “But the courts softened once both sides learned to comply with the rules,” he added. “It will be interesting to see if that happens here or whether the judges will continue to enjoy their new power. This is almost the last roll of the dice from the government. If these reforms don’t work over five to 10 years, we may well find a sort of US model, where costs don’t exist as we know it, it is just imposed on us.”

Measuring success
Nathan Fuller, QBE UK casualty claims service delivery manager, questioned how the government will measure and monitor whether the reforms are having the intended impact. “Is it sufficient to wait five to 10 years to see whether it works and then try something else, or should the government take a more proactive approach in managing the reform?” he asked.

Turning to some of the potential pitfalls of the process, Doran said she has advised corporate colleagues to ask insurers for “a monthly report of what claims have fallen out of the portal and why”, adding: “If insurers have failed to meet deadlines in terms of payments and admissions, and it affects the overall claims experience, they might find themselves in an errors and omissions position.”

Edwards agreed management information and control of monitoring is crucial for the reforms to succeed. As the MoJ’s pledge to provide MI from motor claims in the portal never materialised, “the onus has been on those working within the portal to track that data themselves”, he said. “At some point in the next couple of years it is going to have to ask for our experience and our stats.”

On whether firms will have to defend more claims as a result of the reforms, Fuller said: “There is a school of thought that suggests you can run more cases because of the certainty around costs but, likewise, because of QOCS, claimants might also have the appetite to go down that route. If we go to trial and lose, there’s no recovery of our costs, which could potentially be expensive depending on what arrangements insurers have with their lawyers.”

As the discussion drew to a close, Edwards suggested stakeholders remember “claims that settle under the new regime for the first year are, by definition, the straightforward ones”. With this in mind, he added: “There is a danger that everyone gets excited about the feedback from the first few months. But it may take two or three years before the larger cases come to conclusion, before we actually find the appeal courts getting involved and analysing the way cases are being dealt with.”

With the early implementation of the reforms being positively received by these stakeholders, the discussions will undoubtedly continue as the industry gauges the longer-term effectiveness of the reforms.

This article was published in the 6 June 2013 edition of Post magazine