AS many readers will know, liability insurers are under pressure due to changes in the law that have been introduced over the last 12 months. Of particular concern to them is the issue of whether or not they are liable to pay successful claimants for after-the-event insurance cover as well as success fees, as required by section 29 of the Access to Justice Act 1999.
Senior management within various insurance companies are now blaming the government's initiatives for their poor underwriting performance and, in some respects, somewhat depressing results.
However, a closer examination of the current litigation situation shows that the number of claims being brought to court has actually dropped substantially.
Indeed, the Law Society recently confirmed that it was aware of a rapid drop-off in the number of claims being brought forward – and a consequent fall in revenue for its members.
The Woolf reforms, with strict new protocols on handling claims, and the advent of recovery proceedings, part 36, have had a profound impact.
High-profile claims management companies such as Claimline, Claims Direct and the Accident Group have made it a lot easier for those who have suffered personal injury through no fault of their own, to bring a claim.
Of particular concern to insurance liability insurers is the word “recoverability”, which was established by the government to ensure that claimants would receive all their damages awarded, and not have them diminished by the cost of after-the-event insurance policies or, in relation to success fees, the mark-up that solicitors are allowed to add to their basic costs.
The success fee is there to compensate solicitors for those many cases where they do a lot of work and then have to abandon a claim because, for example, a valid defence is raised by liability insurers. In these situations, the claimant's solicitors can charge nothing to their client and suffer substantial financial loss in relation to work-in-progress which has to be written off.
Thank you, Mr Callery
The rules relating to these areas were defined in the Access to Justice Act and the Conditional Fee Regulations 2000. Many insurers are, however, refusing to pay either the after-the-event premium or the success fee, and are holding up settlement on a huge number of claims – to the disadvantage of the consumer.
On April 2, 2000, a certain Mr Callery may have helped an awful lot of these insurers – albeit he knew it not at the time.
He was a rear-seat passenger in a vehicle that collided with a car driven by a Mr Gray. His case was taken on using a conditional fee agreement, an after-the-event insurance policy, and with a 60% success fee marked up by his solicitors. The case was fought in relation to the question of costs, and came before a court on November 7, 2000. At the hearing, the success fee was reduced to 40% and the after-the-event policy was ordered to be paid by the defendants in full.
The defendant liability insurers appealed against the decision relating to the premium and asked permission to appeal against the success fee – an application that was refused.
The insurance liability insurers therefore appealed again and, on January 29, 2001 in Chester County Court, Judge Edwards gave a clear decision whereby permission was granted to appeal against the success fee, as it was felt to be an important point. Full legal arguments were therefore heard on aspects of the appeal relating to the success fee and the after-the-event insurance policy.
Do you speak legalese?
The appellant ran the well-known argument that the wording of proceedings for section 29 of the Access to Justice Act precluded the recovery of the after-the-event premium, and could not apply in relation to cases settled pre-proceedings. The judge decreed that the meaning of “proceedings” – as given by the newly redrafted section 58 of the Courts and Services Act 1990 – included the contemplation of proceedings reflecting the view of the Lord Chancellor's department, the spirit of the Woolf reforms and the clear intention of parliament. Indeed the relevant minister in December 2000 again reaffirmed the firm views of parliament in this matter.
It is a matter of great concern that liability insurers are still trying to fight on these points, given that they were very closely involved in the original reforms and were aware of the proposed changes in the law as long ago as 1999.
Judge Edwards gave a strong decision that was in favour of the claimants; and that is now being taken to the Court of Appeal. I understand that this has now been ordered that the appeal is to take place before July 31, so it is to be hoped that a judgment will be issued before the end of August of this year.
It is perhaps interesting and illuminating of the approach of liability insurers and the Forum of Insurance Lawyers (FOIL) that its president, Andrew Parker, was quoted in the Financial Times as saying: “This will not create a binding precedent.” This is an unusual interpretation of a County Court appeal decision which is always binding on district judges at first instance.
The more realistic view is that liability insurers must review their reserves. The law is clear, and has been clear for some time. The current situation – whereby liability insurers are refusing, as a matter of principle, to make any payment at all in relation to after-the-event premiums and success fees – can only harden the attitude of claimant solicitors toward those same liability insurers. It's time to negotiate.
Claims management company, Claimline, has been advocating for some time that it should be given the opportunity, with liability insurers, to agree a tariff of success fees. This would remove satellite litigation, allowing a code of practice to be agreed that would provide guidelines as to appropriate success fees for road traffic accidents, accidents at work and so on.
The company also believes that a consensus should be reached as to what constitutes a reasonable premium. At present, unfortunately, Claimline feels rather out on its own on this, and is hoping that discussions can be initiated with appropriate insurers through the Association of British Insurers (ABI), FOIL or whatever body the liability insurers might nominate.
A start is being made
The Court of Appeal hearing for Callery v Gray is on June 5, and a decision before the summer would be a great help to both liability insurers and claimants' solicitors generally. Once the decision has been made, there will hopefully be more scope to negotiate on the lines that Claimline has suggested, with liability insurers avoid ing having to go the Court of Appeal on all issues where matters cannot be agreed.
Currently – and dare I say, at last – all sides of the insurance industry including FOIL, the Association of Personal Injury Lawyers (APIL), the ABI and representatives of large claims management companies and claimant solicitors, are meeting at the Law Society as part of a staged series of programmed meetings with a view to trying to resolve matters amicably.
I understand that these meetings are being, in effect, chaired by the respected John Watson QC, whose views will, undoubtedly, be of assistance to all sides. Anything that helps resolve matters amicably must be to the benefit of all parties. In this regard, I hear that Alistair Kinley of the ABI has been very closely involved in the arrangements and negotiations.
It is to be hoped that the industry can resolve its problems internally, without the need for what could otherwise be endless litigation dealing with aspects of the “brave new world” in which we are all operating following the fundamental changes to the legal landscape that came into effect on April 1 last year.