Insurers set to benefit from judgment on conditional fee agreements

Insurers are in line to save £600m following a court ruling that could make policies based on conditional fee agreements (CFAs) unenforceable.

If upheld by the Court of Appeal, the district court ruling earlier this month means the industry will not have to pay out to personal accident claimants who use claims management companies.

The value of all the claims affected could be as high as £600m, it is estimated.

Solicitor Rob Carter, a senior partner in litigation firm Carter's, said the case involved a claim brought by The Accident Group (TAG), but applied equally to other firms using (CFAs) with solicitors. The agreements are underwritten by insurers to fund the legal costs of fighting a claim.

Carter, who also represented the defendant in English v Clipston said the judgment stopped "the middle men" such as The Accident Group who act between solicitors and clients.

"It says the only people who can sign anyone up to a CFA are the legal representatives. You can't sub-contract out to the inquiry agents that TAG uses.

It would rule out all policies with CFAs which are agreed to by agents of the claims managers. That pretty much kills all the general CFA claims management providers," he said.

The average cost of a case brought by TAG is about £3,200 with about two thirds of the cost typically passed on to an insurer. There are estimated to be up to 100,000 affected TAG cases with up to another 200,000 across the industry.

DAS legal expenses underwriter David Haynes said it was "potentially a huge problem" for TAG and good news for insurers.

TAG is planning to appeal. It said in a statement: "We are confident that the appeal will be successful, as specialist legal advice has indicated to us that the judgment is flawed.

"Once the flawed nature of the judgment is fully understood and it is realised that this is a decision at district judge level creating no precedent, and that a number of other district judges have come to the opposite conclusion on the same issue, we do not expect there to be any effect on our business."