Insurers back CFAs
27 January 1998
Chris Ward thinks that the key to the success of conditional fee agreements lies in insurers establishing a good relationship with the solicitors they work with. Chris Ward is managing director of Abbey Legal Protection.
When Accident Line Protect, the Law Society's conditional fees insurance scheme, was launched the question asked was: 'How can an insurer price an insurance product when there is already a claim?'
The overriding feeling was that it could not be done. But not all insurance men wear grey suits and are averse to risk. Two years down the road all the signs are that it does work.
The Lord Chancellor's intention to extend conditional fees to most civil proceedings is to be welcomed, especially considering the success of Accident Line Protect. The prime reason for this success is not 'a leap of faith' but the detailed research undertaken by Abbey Legal Protect along with the Law Society and practising solicitors over a two-year period.
So can conditional fees operate fairly in areas other than personal injury? The answer is yes, as long as the following principles are adopted.
It is now universally accepted that 'no win, no fee' litigation must be supported by affordable insurance to cover the defendant's costs should the case be lost, otherwise plaintiffs will still risk losing their claims and be faced with having to pay the other side's costs.
This was made clear recently by the case of a 70-year-old man who received more than £20,000 in settlement of his asbestosis-related claim.
He was not eligible for legal aid and would not have pursued his claim without the benefit of a conditional fee agreement (CFA) backed by Accident Line Protect because he did not want to risk his life savings.
The Government must help the less well off with premiums for this insurance. For example, the premium could be funded through a continuing legal aid scheme or it could be included in the costs of a case which the solicitor would either recover if the case is won or write off if it is lost, otherwise the less well off will have only limited access to justice.
One of the great benefits for insurers in dealing with CFA insurance is that there is mutuality of interest with the solicitor working on a 'no win, no fee' basis. If the case is unsuccessful both the insurer and the solicitor lose money.
If established correctly, this partnership between insurers and lawyers is of enormous comfort to insurers.
To establish the partnership solicitors must be able to demonstrate they have legal expertise in the appropriate classes of litigation and also prove their ability to measure and manage risk in them, otherwise the financial burden to insurers becomes excessive and the insurance unworkable.
With Accident Line Protect this quality assurance has been achieved by restricting its availability to firms with personal injury panel members. Similar assurances of quality control will be required in the future, and where ready-made panels of expertise do not currently exist we need to work together to create them.
There is a need for solicitors to restrict their success fees in line with the current voluntary cap (a maximum of 25 per cent of damages), otherwise there is a danger that the value of compensation to an individual could be seriously eroded.
This must, however, be balanced by a level of success fee which is incentive enough for solicitors to risk their basic payment in offering 'no win, no fee' agreements. The level of damages may need to go up.
Bespoke funding schemes must be developed to cater for the expenses of both the plaintiff and those solicitors prepared to risk their fees under this regime, otherwise solicitors will be reluctant to take on valid cases.
The creation of a successful partnership between the profession and insurers will demonstrate that the concept of justice for all can be maintained and expanded in the brave new world of conditional fees.
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