Fixing the system
4 November 2002
The debate over fixed costs in personal injury (PI) claims being played out between the insurance industry, defendant and claimant firms, the trade unions and consumer rights organisations is inexorably bound up with the compensation culture hysteria that so often shouts from the Daily Mail's headlines.
Thompsons, with the unions and the Consumer Association among others, is fundamentally opposed to fixed costs. This might appear to be a perverse position for a firm that has gone through (and survived) the financial mill of the Civil Justice Reforms. After all, fixed costs would provide Thompsons with financial certainty.
But what is good for lawyers' bank balances is not necessarily good for the victims of injury. Fixed costs are in no one's interests but those of the lawyers, the insurers and the employers.
Thompsons' criticism of the Civil Justice Council's (CJC) research into alternative costs models has been widely reported. The research is intended to establish the case for or against an alternative model to reduce the costs of PI litigation. But should we not first establish if - and if so why - PI litigation is becoming more expensive?
Thompsons' letter to the CJC project's chair, Professor John Peysner, raised concerns that those insurance companies and claimant firms being used as the data source for the project will provide selective data in order to corroborate the CJC's assertion of increased or static costs in PI cases. There is no provision to check that the data is accurate.
Even if the two sets of competing data do result in an accurate picture, which Thompsons thinks unlikely, it will not explain why there has been an increase or a decrease in costs.
Thompsons has been attacked by the insurers for "attempting to impugn the efforts of independent academics". Is it not better that the firm voices its concerns now that the CJC is rushing headlong into the conclusion that fixed costs will reduce the cost of PI litigation, rather than be accused of bleating later?
The academics conducting the research have themselves pointed out to the CJC the limited use of what they have been asked to do in the research.
The insurance industry, the CJC and the courts appear convinced that there is a problem. Axa claims that there has been a 15 per cent increase in legal fees and the Association of British Insurers is warning that premiums will have to rise by up to 10 per cent because of increased costs.
However, Thompsons' figures show that there has been no increase in costs. The firm gets what the courts consider reasonable and necessary.
What the firm's evidence does show is that, in Northern Ireland, where a fixed cost regime already exists, substantially more cases get fought through the courts. Only 37 per cent of cases run by Thompsons McClure in Belfast settle without court procedures starting, compared with approximately 60 per cent in England and Wales. The trial figure in Northern Ireland is 18 per cent, as against just 5 per cent in England and Wales.
The Lord Chancellor's Department figures also show that the number of court procedures being issued, in all types of litigation, is down. If cases are not issued, insurers save on issuing fees as well as solicitor, counsel and court fees, the last of which has gone up considerably. The insurance industry's spend on these must be analysed.
Assuming for a moment that Thompsons' Northern Ireland figures are dismissed and there is independent and verifiable evidence that costs in PI cases are out of control, is the answer fixed costs?
The real issue around fixed costs is the role of insurers in society and society's willingness to make the guilty party pay.
Fixed costs - in reality a cap on what can be recovered from the losing side - will mean that whatever the complexity of a matter or the behaviour of the insurers defending the case, and however long the case takes to be concluded, the solicitor will only be able to recover a set amount of fees.
Why cap costs when court rules provide that lawyers can only recover their "reasonable, necessary and proportionate" costs? If excessive costs are claimed, the insurer's answer is to send them to amendment. Indeed, Thompsons has not come across any district judges bending over backwards to bend rules the claimant's way.
All capping will do is encourage unscrupulous lawyers to settle cases early rather than pursue the matter in the best interests of the client. That way they will recover the same fixed cost for less work. There is also a risk that solicitors will seek to recover costs incurred above the capped limit from the injured person's compensation.
In PI cases, the claimant is always an individual with limited means and the defendant always a wealthy insurance company with unlimited financial backing. Capping costs serves only to load the dice even further against the injury victim, allowing the insurers to financially 'outgun' the claimant when costs are near or over the fixed cap.
So the main concern for Thompsons is the impact of fixed costs on claimants and on workplace health and safety. It is morally right that when someone has caused injury they should meet not only the compensation for the injury, but also the full reasonable, necessary and proportionate costs caused by their negligence. Fixed costs will mean that the health and safety deterrent on employers of having to pay not only compensation, but also the costs of proving negligence, will go.
The defendant's argument for fixed costs pleads concern for the claimant in that they provide certainty. But claimants do not need any more certainty than they already have. Under a proper conditional fee agreement, they do not pay whether they win, lose or draw. Costs arrangements are irrelevant in true no win, no fee and trade union-backed cases. Either the solicitor will incur personal liability for the costs or the insurer or litigation funder will step in.
Recoverable insurance premiums and success fees in conditional fee cases were in part designed specifically to encourage lawyers to take on PI cases under the regime introduced by the Access to Justice Act. Capping recoverable costs threatens to reduce the pool of lawyers prepared to take on PI cases and, in turn, threatens access to justice.
If those in favour of fixed costs believe it will keep insurance premiums down, then they do not understand what drives the industry. The insurers' whinging about increased premiums implies that there is a fixed pot of money that is running out. No such pot exists. What does exist are shareholders and the drive for profits. Dare I suggest that, rather than raise premiums, insurance firms might consider paying their shareholders a little less?
Insurers might consider following the example being set by the printing industry. The British Printing Industries Federation (BPIF) has launched a new health and safety management scheme that offers reduced premiums because of good health and safety performance.
As the BPIF says, "companies need to be aware that substandard health and safety practices can lead to penalties It is a vital aspect in insurance, having a significant effect on premiums and, in some cases, the ability to obtain cover." One BPIF insider commented: "Hopefully, bad performers will open their eyes to the fact that they'll go out of business because of the increased costs they'll face."
That is something that the trade unions and Thompsons have been saying for years.
Rachel Sarfas is the director of case management at Thompsons