Insurers need a single, far-reaching initiative on legal costs, says Andrew McBride. If the industry doesn’t start lobbying now, the opportunity for change will slide by ...

Last month I was catching up with the latest legal decision in the costs war concerning Accident Line Protect. Were legal costs payable if solicitors had failed to disclose to their clients an interest in after-the-event insurance policies? Apart from it being obvious that the Court of Appeal is fed up with technical challenges like this, what struck me was the adversarial language that permeated the judgment in the Accident Line Protect cases (2008, EWCA Civ 1375) and others like it.

Claimants must “succeed”; they “win” damages from the “losing” party. This paints an image of the claims process I don’t recognise, of wily legal experts gaining hard-fought victories over recalcitrant insurers who would otherwise never pay. We know this is not true.

Solicitors do play a central role, but most insurers want to settle fault cases – and do so quickly and efficiently. It’s good for the victim and good for the insurer. It could also be good for the solicitor if we could agree a transparent costs system that reflects the entitlement of most claimants to damages and costs – and if we could do away with the myth that the civil legal process is a gladiatorial event.

The problem is how to promote change in a fixed system. We need a single, far-reaching costs initiative. Instead we have three:

  • The Master of the Rolls has instructed Lord Justice Jackson to conduct an inquiry because he is “concerned at the costs of civil litigation and believes the time is right for a fundamental and independent review”. This opens the door to new and bold options such as contingency fees
  • The Ministry of Justice (MoJ) review of conditional fee agreements. The ministry is exploring options for improvement
  • The MoJ motor reform aimed at a quicker and simpler process for fault motor claims worth £10,000 or less. This will be launched in 2010.

Specific inquiries are also under way to look at cost-capping and funding in group actions.

In addition, there is MoJ consultation CP31/08 on increased court fees (the word “increased” is not in the title but, as the department wants to close its funding gap, let me pre-judge and predict that court fees will be going up later this year).

All this activity is an opportunity for us to demonstrate the failings of the current system and to promote ideas for sustainable reform. But, more, we know that decision-makers accept the need for change and are receptive to new ideas. So for what should we lobby?

In my view, our current woes can be traced back to 1999 and consultation CP7/99, disarmingly called Conditional Fees: Sharing the Risks of Litigation. Sharing turned out to mean that insurers pay for all of the risks through success fees. So we have the “supermarket sweep” system with solicitors and their clients happy to build – often disproportionate – costs knowing that someone else will pick up the bill.

Conditional fee agreements should be replaced by a mix of the old and the new. First, before-the-event (BTE) insurance already picks up the bill in many motor cases without fuss. Let’s see if it can be the solution elsewhere. There is also a place for after-the-event insurance to ensure access to justice for accident victims without BTE cover who might not otherwise make a claim.

Second, let’s look at contingency fees. The argument against these is that they are paid out of damages, leaving the victim undercompensated. However, fees could be transferred to defendants one way on a sliding scale applied to damages. If the claimant picked up a minor percentage of the fees and after-the-event premium payable, that would keep the costs bill in focus for all parties.

So let’s gather our evidence, agree our industry’s position and lobby for a simpler sustainable costs system of BTE and contingency fees funding for the many fault cases that are always going to be paid. One thing is clear: we should not let technical disputes about arcane issues obscure the fundamental issues – and an opportunity to instigate real change.