Claims Direct test cases

Liability insurers will be delighted. On 12 February, the Court of Appeal dismissed claimants' appeals in Claims Direct Tranche 1.

Claimants have not sought permission to appeal to the House of Lords. They also will not appeal Master Hurst's Tranche 2 decision, in which he held that payments by solicitors for claims managers' services to Medical Legal Support Services (MLSS) - a Claims Direct company - were unlawful referral fees and could not be recovered from clients or defendants.

The Claims Direct test cases have reached their conclusion. The legacy will be felt in the ATE market.

Lord Justice Brooke said in the Court of Appeal judgment that Master Hurst was right to conclude he should investigate the insurance model, because some features were "bound to excite attention". This was mainly the way services - originally claims handling services for the claimant's damages claim and paid out of his damages - became "insurance services" when ATE insurance was added.

The problem with Claims Direct was the "layers" of cost added during the insurance and claim. This could apply wherever ATE business is conducted through an intermediary who takes more than the appropriate distribution commission.

Brooke made it clear that what was recoverable was the price of providing an indemnity against costs liability. The object of the reforms was not to overload the premium by adding extra costs incurred by companies like MLSS to get underwriters to take on the risk in the first place.

Brooke may have ushered in the end of an era for Claims Direct. But for the clients of other claims management companies, the trouble may be just starting.