Look on the bright side

A new lexicon of terms has been added to the vocabulary of underwriters, claims managers and legal teams. It describes the landmark legal judgments and appeal court decisions on a mountain of in-fighting over the decades. In the legal protection sector, these terms include Sarwar, Callery and Rogers.

The insurance industry helps keep the civil courts busy, and some might wonder whether all the good work in establishing protocols is being undone by an element of vexation, apparently backed by unlimited litigation budgets. Possibly such litigation could be seen to pave the way to fresh protocols.

Either way, case law does in theory reduce the delays, backlogs and frustration when defendant insurers routinely mete out familiar rejections. Naturally, insurers must keep claims costs down wherever they can in order to retain affordable premium levels for their policyholders, or maximise returns to shareholders.

But perhaps a distinction should be made between picking fights with opportunist newcomers to the market - such as the original Claims Direct and The Accident Group - and the established players who have worked hard to provide a valuable resource to the very insurers who take exception to their business models.

Surprise argument

It is always something of a surprise when arguments about replacement vehicles have to be revisited. The legal costs arising from a small car hire battle in court are often substantial on both sides, though the loser generally pays the lot. In the after-the-event market, it has always been necessary to show a transparent premium model and established players have chosen a robust defensive position when challenged. The problem is the sheer number of times that claims departments refute legitimate claims.

However, such test cases are important as they demonstrate the fairness with which justified recompense is sought - in particular, by the established market for before-the-event and ATE cover. Judgments also support the business models under which the established uninsured loss recovery industry has to operate because of the market's aversion to paying a reasonable premium for the services provided. Mitigation of loss, reasonable prospects of success, and the weeding out of fraudulent claims are an essential component of reputable legal protection provision.

Legal expenses insurance continues to be an emerging and evolving sector, from the pioneering BTE products of the 1970s to the emergence of ATE in the 1990s - when the progressive withdrawal of legal aid left large sections of the population disadvantaged. It is destined to change still further - and in even more dramatic fashion - because of legislation once again rather than litigation.

The Legal Services Act will open doors to areas that were previously the sole preserve of the legal profession itself. This should be seen in a positive light, as opportunities arise to provide new products designed to invigorate a currently sterile market dominated by competition on price rather than quality of cover or product innovation. The new laws should not be regarded as another way to disrupt claimants' legitimate rights to seek justice through legal assistance.

It may be in the insurers' interests to challenge and attempt to tame claims costs, but it would be a pity if they continue to attack those who have been doing the job admirably for decades rather than the newcomers.

The jury remains out on whether it was the insurers or the claims farmers themselves who cleaned up the fledgling ATE market: will further litigation be seen arising from changes in the legal protection business brought about by the next round of legislative changes?

At least the industry can breathe a sigh of relief that Rogers has effectively defused the minefields surrounding ATE. While it may have been a nail-biting tussle, there is confidence on all sides of the industry to know that ATE cases with good prospects of success can be moved forward, even when the costs of bringing the claim seem disproportionate to the client's damages. Until that case was adjudicated, some defendant insurers were simply rejecting all ATE claims, often without explanation.

Stable conditions

In a similar vein, the uninsured loss recovery market saw some stability return on the replacement vehicle front through Sarwar and Callery. Issues such as the nature of the ULR company's business model, spot rates versus corporate rates, referral fees and success fees, are hopefully consigned to history.

Motor, commercial and household insurers, not the specialists within the legal protection market, largely dictate the situation we have today. In some senses learned counsel on both sides should be thanked for bringing closure to festering, self-inflicted industry wounds. But as long as there are lawyers - and as long as there are insurers - there will always be two views on every issue.

Should olive branches be handed out? Perhaps liability insurers should follow their own mantra and seek alternative dispute resolution through mediation? After all, talk is free while litigation costs. And, at the risk of playing devil's advocate, it is strongly suggested that insurer v insurer is not good for the reputation of the industry as a whole.

Kathryn Mortimer is head of legal services at DAS.