Personal injury (PI) lawyers have slammed the Ministry of Justice (MoJ) for its failure to implement far-reaching reform of the claims process.
After lengthy consultation, last April the MoJ proposed a series of reforms aimed at speeding up the PI claims process. Specifically, the proposals looked at cutting down claimant legal costs by introducing fixed fees and forcing out the use of referral fees.
All PI claims were set to be addressed, meaning the reforms would have applied to employment liability (EL), public liability (PL) and road traffic accident (RTA) claims.
However, rules released by the MoJ last week (21 July) mean the reforms only apply to RTA cases valued at £1,000-£10,000, with fixed response times and fixed costs. Defendant lawyers argue ;that, ;by ;only addressing RTA and failing to look at EL and PL claims processes, the MoJ has created a two-tier system.
Beachcroft head of strategic litigation Andrew Parker (pictured) brands the exercise “a waste of time and effort”, adding: “It’s typical of this government to put out some grand plans, so we do a lot of work to respond, and then they come back with just some tinkering of the rules.”
DWF partner Anthony Hughes, who is vice-president of the Forum of Insurance Lawyers (Foil), adds: “They appear to have avoided any difficult questions. If they started with a mandate to simplify the claims process and reduce costs, then the MoJ hasn’t lived up to its promises.”
The issue is that, despite taking four years and two consultations, the rules released by the MoJ fail to live up to the proposals outlined last year and do not address key issues set out by Lord Falconer in 2004, when he was Lord Chancellor of the Department for Constitutional Affairs.
Under ;last ;year’s proposals, claimant lawyers would no longer be able to claw back referral fees and after-the-event premiums through settlement. Instead, success fees would pay the solicitors’ costs, which would be proportionate to the overall settlement.
In addition, to speed up the admission or dispute of liability, both insurers and solicitors would have to work within set time periods.
If the case was disputed, the MoJ proposed that a district judge would intervene and set new fixed costs and time periods, which would be proportionate to the case.
With the Association of British Insurers arguing that almost 40p of every £1 paid out in claims goes on legal fees, the defendant lawyer community broadly welcomed the introduction of fixed fees.
Foil president Henry Birmingham says: “Fixed costs ;will ;concentrate solicitors’ minds on what they need to do. It’s going to save insurers from arguing about excessive costs; it will save money by introducing predictability and driving out unnecessary costs; and it will get rid of the situation where the lawyers receive a better payment than the claimant.”
Essentially, any reform of EL and PL claims have been put on hold for the time being while the MoJ attempts to introduce a fixed claims system for RTA cases valued at less than £10,000.
Under the new system claimant lawyers will have five days to notify the defendant insurer of a claim, and insurers will be given 15 days to respond on liability. Legal costs will become fixed, although the MoJ is yet to give any indication of what these could be.
“How are you going to police ;the ;claimant lawyers?” asks Hughes. “It’s impossible. They’ll be able to build a case and just present it as a fait accompli to the defendant.”
This would contribute to rising legal costs, he added, as claimant lawyers look to frontload and boost their own profitability.
In April, Lord Justice Ward, ruling in the PL claim case of Lisa Carver v BAA Plc, said: “This was a small claim in which the defendants admitted liability within months of the accident. To have incurred about £80,000 in costs to contest a claim under £5,000 fills one with despair.”
Parker at Beachcroft says the firm has witnessed a marked increase in the number of claims where costs have been inflated. “We’ve seen a lot of unacceptable behaviour,” he says.
Traditionally, defendant lawyers are at odds with the claimant fraternity. But last year the backbiting was set aside as all stakeholders looked for a way to improve the claims system.
The Association of Personal Injury Lawyers (Apil) rebukes any suggestion that its members are involved in exaggerating costs. Instead, it argues that defendant insurers will drag their heels when it comes to admitting or disputing liability.
Apil president and Charles Russell partner Amanda Stevens said she is “relieved” that the MoJ did not attempt to reform the EL and
PL claims system, adding: “They’ve got their work cut out on the costs review.”
While welcoming the MoJ decision to keep the small claims limit at £1,000 (it had been proposed that it be raised to £5,000), Stevens has joined with Hughes in requesting more detail of the sanctions that would affect those failing to work within government guidelines.
And she warns that there needs to be greater detail around the extent of the discretion afforded to district judges presiding over these cases, saying: “Claimants could suffer from a postcode lottery situation. You could find ;courts ;becoming overbooked if the judges are more sympathetic to a particular side.”
As the MoJ waits to push the reforms through, it is also considering the conditional fee arrangement model and whether it should continue in its current form.
The judicial review of costs is expected to be completed in the autumn. Both will have significant implications for the PI sector.
In the meantime, for the claimant at the heart of the system the Government-approved ;PI ;process remains broken, with little prospect of it being fixed in the foreseeable future.
The MoJ first began its PI reform crusade in November 2004, when Lord Falconer warned that a “claims-friendly culture” was having a negative impact on the UK.
This culture, he said, “creates a fear of legislation, can make organisations risk-averse, cause local authorities to cancel events and cause doctors to practise defence medicine”.
While lawyers are dismayed that the actual reforms are a watered-down version of the proposals, there is also concern that the MoJ published its paper just 24 hours before the summer recess – leading to accusations that the Government is “playing politics” with a claimant system it last year said could not continue in its current form.