Cutting the cost of personal injury


Personal injury claims costs are still increasing thanks to the growth of associated legal costs. Paul Jones gives an overview of some of the solutions to this perennially thorny issue

A recent report published by the International Underwriting Association and the Association of British Insurers claimed that the total cost of personal injury claims to UK motor insurers has risen by 9.5% a year for the last decade. A major part of this increase is the growth in legal costs associated with claims, such that of every £1 paid in relation to a claim 43p is paid in legal costs.

Stephen Haddrill, director general of the ABI, believes that reform to the claims process is vital to counter this effect and that central to any reforms must be a focus on legal costs. "Key to achieving this (reform) is reducing legal costs, which now account for 10% of every motor premium," he says.

What this report makes clear is that the question of legal costs continues to occupy the minds of many in the insurance industry; the future of legal costs is a debate that insurers need to be aware of.

This problem is hardly a new phenomenon. Lord Woolf, in his seminal 1999 report, Access to Justice, remarked that: "The problem of costs is the most serious problem besetting our litigation system."

Since then, the industry has seen a huge growth in the use of conditional fee agreements and all the attendant problems that have followed. Legal costs have been thrust into the limelight and are perceived generally to be a major symptom of the so-called compensation culture. In response, 2003 saw the implementation of a partial fixed-costs regime for road traffic accidents, and in 2005 the system of conditional fee agreements was amended radically to stop the costs war that had arisen in their wake.

Future vision

In April, the Department of Constitutional Affairs published its blueprint for the future of personal injury claims. The consultation paper, Case track limits and the claims process for personal injury claims, set out a possible future for personal injury claims, a major part of the vision of which is a fundamental reform of legal costs.

If the reforms are implemented then legal costs for claims up to £25,000 will be fixed at various levels depending on how the case progresses. The theory is that this will solve all the problems associated with disproportionate legal costs at a stroke and the promise to do this, as set out in the Woolf report, will finally be delivered. However, what is the reality? As with all reforms there are a great many unanswered questions.

There is no timescale for implementation. The Woolf report was published in 1999 and the first implementation of a fixed-costs regime for small, non-litigated RTA claims came into force in October 2003. A similar timescale for these reforms would not have any effect until 2011.

Following implementation, it is unlikely that any changes would have a retrospective effect and it could be 2012 before they start to take hold. Allied to this is the fact that there is real opposition to the proposals from some influential quarters. Thompsons Solicitors, one of the largest trade union solicitors in the country, commissioned a survey of trade union members that opposed the proposals strongly.

It concluded that the proposals were "a multi-layered attack on the funding of trade union legal services, which the Labour government has pledged to support as a foundation stone to a progressive and fair society". This level of opposition is sure to cause delay and possibly some major changes before the proposals become fixed.

Similarly, while the major insurers have offered a generally warm reception to the proposals, the lack of detail at this early stage has lead many to adopt a 'let's wait and see' stance. Until there are firm proposals as to the detail and amount of fixed costs it is impossible to foresee whether the insurance industry will welcome the reforms with open arms or fight to oppose them.

There is also the salutary lesson of the fixed fees implemented for low-value RTA claims. When the figures were fixed in 2003, already based upon historical data, there was concern that the figures would not keep track with inflation.

To date, these figures have not been reviewed or increased and there is a growing dissatisfaction from the claimant arm of the legal profession that fixed fees simply do not work unless they are subject to periodic review. Unless the new scheme builds in such a review process it is reasonable to expect further opposition from this quarter.

There is also the issue of how flexible the fixed fees will be. With any fixed-fee system there is a balance to be struck between certainty and flexibility. There will always be cases that deserve to be treated differently from the run-of-the-mill. Facilitating this would require a discretionary element to any fixed costs system, however, with discretion comes the inevitable arguments about what should or should not qualify for that discretion. Against this, if the market adopts a system that avoids such arguments by allowing no escape from the fixed costs then there is real potential for unfairness.

The fixed-costs regime for low-value RTA has adopted the certainty over flexibility approach and, for claims of no more than £10,000, it can be argued legitimately that swings and roundabouts will even out any perceived unfairness. However, including all personal injury claims up to £25,000, there will be many more cases where the fixed costs may be perceived as unfair and this suggests that there may have to be a residual discretion within the system.

Inevitably as a consequence there will be a proportion of cases where the parties are arguing over whether the discretion should or should not be exercised. Under an earlier regime, before the implementation of the Civil Procedure Rules, costs were limited to £1315 where damages were less than £3000. However, there was a discretion to exceed this sum and parties were embroiled constantly in arguments about whether, and if so, then by how much, this sum should be exceeded. Will the new regime have a similar hole in it?

It is, therefore, clear that there is some way to go before the problem of legal costs can be filed under the heading of 'problem solved' with any confidence. Insurers must continue to be vigilant in relation to legal costs for the foreseeable future and continually monitor and refine their strategies for dealing with legal costs. To adopt the attitude that it will all be sorted very soon and not worry would be a major mistake. Insurers need to continue to keep a very close eye on legal costs.

Fixed costs will only ever be appropriate for the bulk of personal injury claims, but what of the smaller, but still important, number of cases that fall outside the norm and where legal costs can spiral to very high levels?

One way that the courts are seeking to take control of this issue is through the use of more proactive case management. The CPR placed great emphasis on the need for parties to provide estimates of their costs to enable their opponent and the courts to manage the case effectively and proportionately.

Unfortunately the theory has not really delivered in practice. Many costs estimates are little more than a figure plucked from thin air and often bear little resemblance to the reality. A party can be penalised if it provides an estimate that proves to be too low and there is a real temptation, therefore, to increase an estimate to a much higher figure to avoid this eventuality.

One way the courts are starting to deal with this problem is by the use of costs caps. This allows the court, when faced with a costs estimate that appears to be too high, to impose a cap on the costs before they are incurred. This is intended to focus the mind on costs and provide a brake on costs building.

Focus the mind

So far, this power has been used only sparingly, but a recent Court of Appeal decision suggested that this was an issue that needed to be revisited by the Civil Rules Committee. Could this provide an effective way to control the costs of litigation?

If parties were required to set out realistic estimates of their costs at an early stage and these were subject to scrutiny by the courts then this could act as a real incentive for parties and their legal representatives to focus their minds on the level of their legal costs. The court would have a wide discretion to treat cases on their individual merits, but would also have the power to prevent costs escalating to disproportionate levels. If this were widely adopted it may have the desired effect of a judiciary-led limit on escalating legal costs in litigated claims.

Fixed costs and costs capping may, therefore, represent the future of legal costs, but then again, it may be something entirely different. Either way, it will continue to be a subject that all insurers need to keep on their radar.

- Paul Jones is technical director at Legal Costs Negotiators.


Legal Costs Negotiators is a specialist legal costs consultancy providing a full range of legal costs services to insurance companies, Lloyd's syndicates, London market insurers, loss adjusters, insurance brokers, self-insured corporate clients and the public sector for all types of claims including road traffic accidents, employers' liability, industrial disease, public liability, professional negligence, clinical negligence and commercial claims.

Established in 1994 and operating from its offices in London Docklands and Manchester, LCN is able to cover the whole of England and Wales. LCN deals only with legal costs. This focused approach, together with skilful application of its expertise, has resulted in LCN achieving total savings in legal costs for its clients of more than £250m.

In addition to negotiating legal costs, LCN works in partnership with its clients to provide advice, specialist consultancy and training to enable the development of a comprehensive strategy for reducing legal costs, reducing the overall claims spend.

LCN is also able to offer an audit facility in respect of solicitors and third-party claims administrators.

With LCN's advice, clients are able to control legal costs from the inception of a claim through to the negotiation of costs and attendance at court where a negotiated settlement is not possible.

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