David Campbell says more insurers should outsource cost claims handling to combat inappropriate and excessive claims

The feeling is that most of the so called legal 'costs wars' are now over. There is a view in the insurance industry that the necessity to use specialist cost negotiation services has diminished - especially now low value road traffic accident (RTA) claims are subject to a matrix-driven formula.

But is that really true and can the industry afford to relax on the question of costs?

Some would appear to think so. Based on results achieved in the past 18 months, Liberata thinks differently. Since 1999, Liberata has disposed of 500,000 costs claims totalling £1.8bn in claimed costs, saving clients more than £500m.

These savings have been achieved by contesting a solicitor's entitlement to costs, which may have been claimed excessively, inappropriately or a combination of both.

Savings are typically achieved by challenging hourly rates, claims for excessive time and correspondence, and contesting disbursements which may not have formed part of the substantive action or have been claimed in terms so excessive as to be completely disproportionate to the issues involved.

Excessive after-the-event insurance premium costs have also been reduced considerably, as solicitors have been forced to recognise the courts will not tolerate fees being paid for the scope of such indemnity that wouldn't be required in the most complex of cases, let alone the simplest RTA claim.

Savings are also regularly achieved in the area of medical agency fees, especially where there may be links between the solicitor and the agency.

In some cases, it has been established that the costs of procuring medical evidence are claimed in sums more than the actual cost of the medical evidence itself.

Additionally, there are a small number of solicitors who claim excessive costs on a routine basis, apparently on the assumption that they might occasionally get a claim through if no one is watching.

Since June 2004, Liberata's predictable costs (PC) team has processed more than 30,000 PC claims and saved more than £2m for clients on cases where savings were supposed not to be possible.

We estimate UK total industry leakage in this area could be as much as £12m annually. Some insurers have no idea they are contributing to this leakage because they have no process to benchmark their in-house procedures.

While the more astute insurers have taken appropriate measures to combat inappropriately claimed costs under the Civil Justice Council rules, many insurers believe it is not necessary to outsource costs claims handling in these cases. They have buried their heads in the sand over the fixed costs issue, preferring to settle for the savings they have made by not engaging expert help on costs issues.

Little do they realise they have probably leaked this expense many times over at claims handler level in inappropriately paid costs.

Claims handlers have paid costs in extraordinary sums because they simply don't understand the rules and/or have been hoodwinked by less than scrupulous solicitors who convince claims handlers that all sorts of spurious claims should be paid.

Had these insurers engaged specialist costs services, they could have shared in the benefits of stopping disbursements, such as interpreter's fees, being paid in all but the most appropriate of cases.

But our question to these insurers is: "How do you really know how much your handlers are paying in inappropriate costs?"

Liberata is alerting its clients to the fact that certain firms of solicitors are engaging in 'try-on' tactics when claiming certain types of disbursements.

In any costs dispute, an insurer needs to know its representation meets the requirements of the law to be effective in the courtroom.

In the case of Ahmed v Powell in February 2003, senior costs Judge Hurst ruled: "... A

contingency fee agreement which entitles those providing litigation services to a percentage of anything recovered may give rise to particular objection on the ground that it poses a temptation to act in an unethical manner in order to achieve the maximum recovery..."

This is why Liberata, in partnership with Keelys Solicitors, has complied with the requirements of this landmark judgment by offering clients fixed fees in both litigated and non-litigated cases.

Other legal cost negotiators continue to charge contingency fees, thereby exposing their clients to risk and expanding the potential for claimant solicitors to negate their costs negotiator's arguments by bringing the 'law of champerty' to bear. This law means that it could be construed that a bigger fee is improperly being obtained.

Liberata believes some quarters of the insurance industry have been lulled into a false sense of security by the conclusion of most of the high profile costs wars and the apparent immediate attraction of saving costs negotiators' fees in so-called predictable fee cases.

Many insurers are putting themselves at risk by entering into remuneration arrangements with their suppliers.

There can be few other industries where savings of millions of pounds are at stake. Yet there is so much apathy to securing a share of that money, which could be used to lower premiums and expand market share. IT

' David Campbell is business director at Liberata