Claimants' costs are set to spiral as a result of changes to the Civil Procedure Rules which enable success fees and after the event insurance premiums to be recovered from the losing party.
The message is clear – insurers must act quickly to recognise the potential impact that conditional fee arrangements (CFAs) will have on costs.
CFAs the real issue
Statistics show that 30% of insurers' total outlay on personal injury cases is made up of claimants' costs. The impact of paying an insurance premium and success fees of up to 100% should not be underestimated.
There has been a lot of debate about the Court of Appeal rejecting calls to double damages, and the discount rate for future loss – and yet CFAs will hit insurers as hard if not harder. Ultimately the public will pay the price as premiums rise.
There is also the danger that the imbalance in fees received by defendant and claimant solicitors could lead to a two tier legal profession – reducing insurers' ability to contain the cost of claims.
The reforms aim to fill the funding gap left following the withdrawal of legal aid by encouraging solicitors to enter into CFAs with success fees backed by after the event insurance. Claimant solicitors already recover higher hourly rates than defendants. The new rules will enable them to double those figures in some cases through recovery of success fees. Many will receive commission from after the event insurers as well.
They will have the funds to invest in state-of-the-art technology and offer staff more attractive salaries and benefits. If that continues, there will be a drain of defence solicitors to more lucrative claimant work and difficulty attracting the highest calibre lawyers into this area of work. The end result will be that insurers will be disadvantaged.
In the short term insurers must get to grips with the new rules and insurance products as quickly as possible. Claimant solicitors will use their ingenuity to devise numerous ways of using the rules to their advantage. Insurers need to be prepared to meet those developments and devise their own strategy to address points from the outset.
In the longer term insurers should look for ways to curb excesses. Extending before the event legal expense insurance is one option. Fixed or benchmark costs which act as a brake on rising costs could be another – provided costs are based on data from both sides of the profession. We have a government which is committed to consultation. Organisations such as the Association of British Insurers and the Forum of Insurance Lawyers must continue to work to match the successful lobbying by established pressure groups such as the Association of Personal Injury Lawyers and Action for Victims of Medical Accidents .
Setting premiums for solicitors
Even though the deadline for solicitors' insurance has now gone by, it is rumoured that a large number of firms do not yet have insurance in place.
Those firms will fall into the Assigned Risks Pool for the moment, but no doubt the vast majority will in the next few weeks obtain suitable insurance from the open market. Potential insurers should consider the reasons why insurance was not obtained in time. There will often be a good explanation, but it raises the question of the prudence of insuring a firm that has failed to organise itself well enough to renew by September 1. That issue apart there are other matters that insurers should take into account.
Statistics produced by the Solicitors' Indemnity Fund (SIF) show that an astonishing 30% of all claims, and 65% of all litigation claims, have been caused by missed deadlines. Insurers should look to see if law firms have – and use – diary systems to avoid human error.
Supervision is also an important consideration. Well-supervised staff mean fewer claims. Many claims arise from people being overworked or having cases or tasks delegated to them which are beyond their experience.
Insurers should look for external accreditation such as ISO 9001, Investors in People and also the new Lexcel standards.
Insurers should also look for the experience members of the firm have of doing the type of work. They should ask for details of when staff joined the firm and when they qualified, information on specialist areas, participation in specialist panels, continuing professional development and formalised internal procedures for updates in the law.
Procedures to prevent fraud and dishonesty should also be considered. Insurers should inquire about cheque signing and internal accounting procedures.
Good insurers should be looking to develop a commercial relationship with solicitors.
If law firms can reveal this information at the proposal stage it will enable insurers to set premiums more accurately.
Appeal hits skids
With autumn fast approaching, the House of Lords has said that local authorities cannot be successfully sued under the Highways Act for failing to prevent ice forming on a road or pavement – Goodes v East Sussex CC.
One claimant was driving his vehicle when it skidded on black ice and he suffered catastrophic injuries. The defendant county council had despatched gritting lorries which had arrived minutes after the accident.
The claimant alleged that the county council had failed to comply with its statutory duty under section 41 Highways Act 1980 to “maintain” the highway.
The claim was dismissed at first instance. The Court of Appeal upheld the appeal on the basis that the Act required the council to prevent ice from forming.
The House of Lords then dismissed the action. It said that the duty to maintain the highway was absolute but, adopting the dissenting speech by Lord Denning in Haydon v Kent CC (1978) QB 343, only extended to maintenance of the fabric of the highway.
The House of Lords noted the absence of any corresponding statutory duties similar to section 34 Roads (Scotland) Act 1984 which puts an express duty on authorities to take reasonable steps to prevent snow and ice endangering pedestrians and vehicles. It was concerned that imposing an absolute duty to remove or prevent ice forming would be too harsh.
This decision means that as long as the fabric of the highway remains “in such good repair as renders it reasonably passable” an authority cannot be successfully sued either in negligence or under the Highways Act for failing to prevent ice forming.
This is as long as it doesn't amount to an impediment or obstruction under section 150. Such absence of liability would exist even if the ice had been present for a considerable period of time and, to any reasonable person, amounted to a danger on the highway.
From a resources viewpoint there is no legal need for authorities to incur significant expense in sanding and gritting, although it is to be hoped it will continue for obvious safety reasons. Similarly there can be no liability for mud, floodwater or any substance which does not damage the highway surface and has caused an accident. Only Parliament can create such liability.