As the government prepares to implement Lord Jackson’s proposals for civil litigation costs, justice groups and legal expenses insurers are questioning his findings

Like many people, Carole Whittingham has not read Lord Jackson’s weighty 557-page review of civil litigation costs in full. But that doesn’t stop her worrying about it.

A passionate supporter of the right to access justice, she set up the charity Support and Care After Road Death and Injury (SCARD) following the death of her son in a road traffic accident nearly 20 years ago. In the days before no-win, no-fee conditional fee agreements, she says she struggled to pursue a claim against the driver who killed her son.

Now it’s odds on that the government will adopt the majority of Lord Justice Jackson’s proposals following the conclusion of its consultation on the reforms last week. These reforms include qualified one-way cost shifting, and scrapping the ability to recover after-the-event (ATE) insurance premiums and success fees from the other side.

Whittingham fears that if this happens, many claimants and their families will face the same ordeal as her. “I know that it is going to affect people in a negative way. We think it is a downward step that is going to affect a lot of people who have already been traumatised,” she says.

Most general insurers are in favour of the proposals and many could be forgiven for thinking that the reforms are a done deal. But Whittingham is one of many who have misgivings, and the anti-Jackson lobby is gaining momentum.

Fraudulent claims

Legal expenses insurers have a lot to lose if the Jackson reforms go ahead. All are heavily exposed to ATE insurance, which Jackson hopes to scrap.

Consequently, legal expenses insurers are backing groups such as the Consumer Justice Alliance (CJA) and the Legal Expenses Insurer Group (LEIG) to lobby consumer groups and charities that the reforms will work against them. They argue that the reforms will impede access to justice for genuine claims and open the door for a spate of fraudulent or unmeritorious claims.

So just how valid are their arguments? Legal expenses insurers say that scrapping the recoverability of ATE insurance premiums and success fees from the other side will create difficulties for claimants wishing to pursue a complicated but deserving claim. The anti-Jackson lobby argues that lawyers will now only take on cases that are sure-fire winners because it will be uneconomic to take on borderline cases.

Stephensons partner and head of litigation Andrew Welch explains: “At the moment, a lawyer can recover quite substantial success fees for winning a difficult and complex case – a claim that was deserved but difficult to run. Under the proposals, that incentive will be gone.”

Flawed assessment

The Jackson Review has also come under attack for being racially discriminatory. Legal expenses insurer Lamp chief executive Alan Cousins has submitted a complaint to the Equality and Human Rights Commission. He argues that the reforms will pose a barrier to about 65,000 claims, of which a significant proportion will be industrial disease claims – such as noise-induced deafness and vibration white finger syndrome – that are complicated to establish and pursue.

And Cousins says that a high proportion of the claimants that sustained their injuries in low-paid industrial work in the 1960s and 1970s were immigrants from ethnic minority backgrounds. Of the 12,400 industrial disease cases on Lamp’s book, a quarter of claimants are in this demographic, says Cousins. “It is simply that people who work in relatively low-paid industries in the time periods in question tended to be from an ethnic minority background. By our analysis, it is about six times the national average.”

He argues that Lord Jackson failed to carry out adequate research to establish what proportion of the population would be most affected by his reforms.

The anti-Jackson brigade also says the reforms will deprive successful claimants of their full compensation.

To counter the loss of the recoverability of ATE and success fees, Jackson has proposed that general damages be increased by 10%, from which legal costs and success fees will be extracted. But CJA chairman Nigel Muers-Raby argues that this is not enough to cover the legal costs and success fee, which can be as much as 100%.

DAS Legal Expenses chief executive Paul Asplin believes the Ministry of Justice (MoJ) impact assessment is flawed and the government has rushed its consultation. “The biggest problem is that there is no fact-based evidence. It is all conjecture,” he says. “People have been pushed to give quick responses. What we are missing is a factual cost-benefit analysis.”

The legal expenses market is preparing for battle. Asplin warns that DAS will take action if the government attempts to push “the reforms through the back door” and will lobby for a judicial review of the MoJ’s impact assessment.

The question of legal aid reform is also a cause for concern. Personal injury law firm Pro Legal director Susan Brown, who is the author of the CJA policy brief on Jackson, explains that the recoverability of success fees and ATE premiums was brought in by the Access to Justice Act 1999 to preserve access to justice for injured people as legal aid was removed for personal injury claims.

Lord Jackson has stressed that his reforms should only be implemented if there is no change to legal aid. However, the government has said that it will scale back legal aid even further, making it available only for asylum and mental health cases and family cases involving domestic violence, forced marriage or child abduction.

This, argues Brown, will prove a huge barrier to deserving claims: “Jackson’s proposals come as a double-whammy, as these measures would be implemented alongside the further removal of legal aid funding for a wide range of claims.”

Slippery slope

It is not just legal expenses insurers and consumer groups that are worried. In a report by a working group of 11 academics, headed by Bristol University professor of tort law Ken Oliphant, Jackson’s proposals are lambasted as “inconsistent” with “the fundamental principle of civil justice”, and a “slippery slope towards ever greater inroads into compensation to which injured persons are legally entitled”. The report accuses Lord Jackson of systematically preferring the evidence of the defence lobby.

Consequently, it is suggested that this removal of access to justice could potentially be in breach of the European Convention of Human Rights – creating headaches for the government in the long term. “The reforms are a sitting duck for a human rights case. It is inconceivable that somebody wouldn’t bring one,” says Asplin.

The crux of the anti-Jackson lobby’s argument is that while the present system is flawed, it requires a makeover rather than a radical overhaul. Legal expenses insurers and claimant lawyers argue that ATE presently acts as a valuable filter to get rid of the vast majority of unmeritorious claims from the process.

Arag chief executive Tony Buss explains: “The solicitor decides to take the case and we act as a double check. If we don’t back the case then it doesn’t go ahead.” He suggests that the ATE market typically declines two-thirds of all cases.

LEIG’s response to the consultation attacks the myth of compensation culture, pointing out that only 40% of public liability cases succeed. This, according to LEIG’s report, shows evidence of councils’ improved ability to defend cases. Moreover, LEIG member DAS reports a decline in the incidence of public liability claims (see box). According to research from the Access to Justice Action Group, insurers Elite and Templeton each reject 63% of cases, Arag 67%, Amtrust 61.4%, Lamp 55% and DAS 38.7% .

One-way cost shifting

To counter the loss of ATE insurance, Jackson has proposed qualified one-way cost shifting, whereby the defendant is required to pay the claimant’s costs if the claimant is successful, but not vice-versa. But it is argued that this reform will bring about a plethora of unintended consequences, including a rise in weak claims.

“If you are a ‘have a go’ claimant, qualified cost shifting will look attractive because you don’t have to pay the costs of the other side,” explains Stephensons’ Welch.

According to DAS’ Asplin, qualified one-way cost shifting is the most dangerous of the proposals. He argues that it will bring the UK closer to the US legal system, where tort litigation is currently three times higher than here. “While the genuine claimants may have trouble getting their case through, you will get a whole new breed of vexatious nuisance claims,” he says.

He points out that a similar system operates in employment tribunals, where insurers have seen a considerable spike in claims. “The number of cases in employment tribunals went up by 56% last year and the CBI has said that 26% of their members pay off claimants even when their legal advisers say they have a good case because it is uneconomic to fight the claim,” he says.

The CJA argues that there are alternative routes to save the government money without implementing Jackson’s reforms. These include extending the recovery of the NHS charges scheme and making tax and national insurance recoverable as part of loss of earnings claims by the defendant insurer on every claim. According to the CJA, this will compensate the taxpayer for the losses suffered as a result of the injured person’s incapacity for work.

The response also proposes making statutory sick pay recoverable in all claims and that solicitors instructed by the NHS and public authorities should enter into a conditional fee agreement to mitigate costs. “The government saw this as an opportunity to reduce pressure on the public purse. Our argument is: don’t just throw the system out, let’s see if we can make it better,” says the CJA’s Muers-Raby.

Most general insurers remain convinced that the Jackson reforms are a good thing, however. The ABI argues that implementing Jackson’s entire package of reforms would help preserve access to justice for claimants and that exorbitant legal costs springing from the present system are no longer sustainable.

The ABI surveyed over 50,000 low-value motor accident claims from September 2009 to March 2010, and found that for every pound paid in compensation, 87p went on legal costs. It found that UK consumers are paying £2.7m a day to the legal profession through their motor insurance premiums – or £41 per policy. ABI research also shows that, for personal injury claims lodged in 2002, the insurance industry paid out £7bn in compensation. It holds that current trends indicate that, for personal injury claims lodged in 2009, payouts will double to an estimated £14bn.

“The personal injury system is too slow, too expensive, and fails too many genuine claimants, encouraging many people to believe that there is a compensation culture that they can exploit,” the report said.

The government’s consultation has drawn to a close and the final decision on the implementation of Jackson’s reforms is expected in May. The anti-Jackson brigade has some strong arguments but only a short amount of time to swing both public and insurers’ opinion against the reforms. The race is on. IT

What the anti-Jackson lobby says about the reforms

It will cost insurers money

According to legal expenses insurer DAS, Jackson’s proposed reform of qualified one-way cost shifting will increase fraudulent claims and shackle insurers with an extra £300m in costs.

It will cost the government money

The Consumer Justice Alliance says public money is already recovered as a result of individuals pursuing compensation claims. Department for Work and Pensions figures indicate that the sum recovered in respect of benefits alone in 2009/10 was £170m. This income would be lost or reduced if fewer people were able to pursue compensation claims.

The government will see a reduction in the amount recovered through VAT on legal costs and expert report fees and lower levels of insurance premium tax from liability insurance policies as a result of reductions in premiums.

It is racially discriminatory

Legal expenses insurer Lamp argues that the Jackson reforms will pose a barrier to approximately 65,000 claims, of which a significant proportion will be industrial disease claims brought by immigrants of ethnic minority backgrounds. Of the 12,400 industrial disease cases on Lamp’s book, a quarter of claimants are in this demographic.

It is based on the myth of compensation culture

The Legal Expenses Insurers Group (LEIG) points out that only 40% of public liability cases succeed. LEIG member DAS reports a decline in public liability claims, from 32% in 2006 to 11% in 2010.