Backlash against injury lawyers' fees will grow
23 April 2007
The Lawyer's coverage relating to the miners' compensation scheme (9 April) made depressingly familiar reading to defendant lawyers. The Woolf Reforms were introduced to increase speed and reduce cost. Since 1999 the cost of claims had risen inexorably and 40 per cent of insurers' outlay now goes to solicitors. It is little wonder that we are seeing injury millionaires emerging from the ranks of claimants' solicitors.
The Government recently published details of the legal costs paid under the miners' compensation scheme. These totalled a staggering £923.5m. Given the number of claims that have passed through the system, it is argued that this figure is proportionate and reasonable. However, when it is considered against the amount spent defending the claims, a shocking disparity is apparent. The Department of Trade & Industry (DTI) spent £35m on its defence, less than 4 per cent of the amount that was paid to the claimants' representatives. Even these figures do not reveal the full extent of the gap. A number of the firms involved are being investigated for taking further payments from their clients' damages. Unfortunately, no figures for these amounts are available. However, even a modest amount from each claim would take the costs bill beyond the £1bn mark.
The disparity in fees between claimant and defendant also exists in civil litigation. Defendants will routinely see fast-track cases in which the claimant's schedule of costs for a trial totals £15,000-£20,000 and the defendant's less than half that. It must be acknowledged that more work is involved in bringing than defending a claim. However, it is not double the amount of work.
When advising insurer clients on reserve in fast-track cases (ie trials costing less than £15,000), the largest single component of the reserve is the claimants' solicitors' costs. In medical negligence cases the claim will need to have a value in excess of £25,000 before the claimant receives more in damages than their solicitor does in costs.
One of the more ridiculous examples involves a tripping accident. The claimant recovered £1,405.12. The schedule of costs submitted for trial totalled £29,827.99.
In an endeavour to halt the escalation in costs, a fixed-fee regime was introduced for low-value road traffic claims that have settled pre-litigation. This year the first report on the operation of that system was published. This showed some very encouraging trends: the costs war for these claims abated; there was no evidence of undersettlement; and most importantly of all there was no evidence that claimants' solicitors were providing a substantially different service.
That was the good news. The bad news was a rush to litigation by firms looking to avoid the scheme.
It would be grossly unfair to say that all claimant solicitors are millionaires. Indeed, a number of claimant law firms have gone out of business over the past five years. Others are looking to abandon personal injury (PI) work. The problem is that stories of millionaire injury lawyers are turning public perception against lawyers. Politicians have woken up to the fact that excessive costs in the public sector are met by the public through taxation, while excessive costs in private sector claims are met by the public through insurance premiums.
Looking to the future, the problem for the entire profession is that the public will not tolerate a situation in which lawyers routinely receive far more in costs than their clients do in damages.
On all sides of the argument a number of matters is apparent. First, costs cannot continue to increase at their current rate. Second, the current costs arrangements encourage inefficiency and overwork. Third, the amount of money available in the PI system is so great that significant temptations exist for unscrupulous individuals.
Following the introduction of conditional fee arrangements, the Government made it clear to lawyers and the judiciary that it is for us to solve these problems. Unless progress can be made in the near future, we are in danger of a political backlash. The door is open to negotiation.