The government's policy on ATE insurance has left the industry with many loopholes to slip through. Martin Staples argues that solicitors and insurers need to be kept in check....
I have to issue a warning to liability insurers. Many may believe that conditional fees and after-the-event (ATE) insurance are only related to trips and slips and claims that were traditionally legally aided. The announcement of Geoff Hoon, the secretary of state at the time, that from April 1, 2000 the loser will pay success fees (up to 100% of solicitors' fees) and ATE insurance premiums will affect all claims.
A commercial dispute could attract a premium of several hundred thousand pounds, in addition to the damages and a success fee on top of the base costs.
The potential inflationary impact of this is enormous. This is why it is essential that those solicitors and ATE insurers who take advantage of the loopholes that have arisen in the ill-thought-out government policy, need to be kept in check. I have been arguing this on behalf of the insurance industry for the past year in my capacity as president of the Forum of Insurance Lawyers (Foil).
Presently, a solicitor should check with his client as to whether or not he has legal expenses insurance under his household/motor policies or credit card. The solicitor should not just ask the question, but should inspect the policy or call the insurer to see if such cover exists. If not, then he is entitled to proceed by way of a conditional fee agreement.
This means no win, no fee. He charges a success fee on top of his ordinary costs. This is intended to protect the solicitor by creating a fund of excess costs to compensate him for the claims he loses, and therefore receives no costs. While the success fee is the protection for the solicitor, his client needs to be protected against his liability to pay the opponent's costs if he loses by an ATE policy.
Lord Woolf's reforms of civil litigation, which by and large have been very successful, provided for a three-month period from the letter of claim to the issue of proceedings, to enable the defendant to settle the valid cases and if he were not prepared to settle, to say why. That was intended to save costs. If the claim settles during that three-month period, the rules allow for the recovery of a success fee for the claimant's solicitor. However, he does not need to take out an ATE policy because he has no risk of paying the defendant's costs during that three-month period. There is no insurable risk.
It is argued by ATE insurers that by charging a premium at the start of the three-month period, the premiums will be maintained at a modest level. If the only premiums to be recovered were in the case of the defendant declining to pay and proceedings were issued, the premiums would be vastly higher because, quite plainly, there was a real issue at stake. However, 90% of claims settle before proceedings. It is almost inconceivable that the premiums on the 10% that go to proceedings, where a very large proportion will still succeed, can be the equivalent of the total premiums on 100% of claims made from the outset.
Many of these schemes are not there for the protection of the claimant but as a means of supplying a flow of claims to the solicitor. He is obliged to insure his client with that particular provider. Accordingly, the premium is not what protects the claimant for his loss, but part of a commercial arrangement with the solicitor.
As matters stand at present I am unaware of any insurer who is paying ATE insurance premiums prior to proceedings and indeed any premium for Claims Direct.
For more information please contact Liz Bramwell at lizbramwell@hotmail.com .
