Southern Rock had sought £15.5m over poor claims handling and missing fee income

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Endsleigh has settled with Southern Rock in a legal dispute in which it was accused of inadequate claims handling and pocketing referrals.

Gibraltar-based insurer Southern Rock was seeking £15.5m from Endsleigh, according to the writ, but both parties have declined to reveal the amounts of money involved in the final settlement.

Endsleigh handled 50,000 claims for Southern Rock from 2004 to November 2008.

The two firms fell out when Southern Rock claimed Endsleigh took too long to settle the claims, which Endsleigh strongly denied.

Southern Rock amended the writ this year to also accuse Endsleigh of pocketing referral fee income that it should have had also had a cut of.

An Endsleigh spokesman said: “We have reached a mutually acceptable agreement, the terms of which remain completely confidential.

“We are pleased that reaching this compromise allows a line to be drawn under these proceedings.”

Markerstudy also accuses Endsleigh of being an inadequate outsourced claims handler.

Insurance Times also understands Endsleigh will meet representatives of Markerstudy this week and that the two parties could reach a solution to their dispute.

An Endsleigh spokesman declined to give details of the proceedings.

But Markerstudy revealed in its latest filed accounts that it expects to recover at least £6m from Endsleigh, which handled Markerstudy’s claims until 1 July 2008.

News of the settlement follows last week’s approval by the House of Commons of the government’s ban on referral fees in personal injury cases.

MPs voted by a majority of 306 to 228 to pass the Legal Aid, Sentencing and Punishment of Offenders Bill, which includes the government’s recently included amendment to ban referral fees.

But the House voted by 302 to 208 against former justice secretary Jack Straw’s amendment to make the payment and receipt of referral fees a criminal offence.

Explaining the government’s decision not to pursue the criminal­isation of referral fees, justice minister Jonathan Djanogly said: “Creating a criminal offence would be a very blunt instrument in this case.”

He said that it would be “very difficult” to prove beyond reasonable doubt that money had changed hands for the referral of a potential claimant.

Djanogly said that it would be better for the payment of referral fees to be treated as a regulatory offence, which would be enforced by bodies like the FSA. He also told the House of Commons that justice secretary Ken Clarke is looking at extending the referral fee ban beyond personal injury cases. The bill will now pass to the House of Lords for its approval.

Pass notes: Referral fee ban

How will the referral fee ban work?
The government has said that the payment and receipt of referral fees will be a regulatory, rather than a criminal, offence.

What difference does this distinction make?
By going down the government’s favoured route, the ban will be policed by regulators, such as the FSA and the Solicitors Regulation Authority. This won’t catch everybody. But it will catch all regulated firms including insurers, brokers, lawyers and claims management companies, as well as public sector bodies like hospitals and police forces. The government believes the net will be cast sufficiently wide to disrupt the referral fee gravy train.

What are the pros and cons of criminalising referral fees?
The government argues it would have been difficult to enforce a referral fee ban as a criminal offence. Ex-justice secretary Jack Straw says criminalising referral fees would be a more powerful deterrent.

We say …

● A settlement avoids messy civil litigation at a time when referral fees are in the public eye. It could have been embarrassing for Endsleigh’s parent, Zurich, which took a strong stance on referral fees.
● The deal leaves Endsleigh’s management to focus on Project Windmill, the development of a low cost aggregator insurance platform for Zurich.