The much-anticipated Jackson Review is in, and not everyone is happy. Cracking down on legal expenses firms and the claims farmers he calls ‘abhorrent’, Lord Jackson is here to whip personal injury litigation into shape

The personal injury landscape has come to resemble the Wild West. With scorching heat, constant battles being waged, and gold in them hills, anything goes in the insurance industry’s most dangerous frontier. But Lord Jackson is determined to be the new sheriff in town and this week published a wide-ranging review designed to put an end to the escalating costs of litigation.

As with any battle, there are winners and losers. Jackson’s review, which was commissioned by the government, is designed to cut costs and to protect the man on the street. Insurers are set to benefit from a potential reduction in claims costs. On the other side, legal expenses firms, accident management companies and brokers have little to cheer about.

From the insurer point of view, there are three benefits. First, Jackson calls for a ban on lawyers paying referral fees for personal injury. That has the potential to reduce claims farming and the number of cases defendant insurers face.

Secondly, he proposes extending fixed costs for accident claims up to £25,000, along with fixing costs for lawyers’ hourly rates. This will help insurers reduce costs in personal injury claims.

Thirdly, losing defendant insurers will no longer have to pay success fees and claimants’ after-the-event (ATE) premiums. To make sure claimants are not left out of pocket by this proposed reform, Jackson has called for a 10% increase in damages in personal injury cases, something insurers are happy to pay if cases are justified and within reasonable legal costs.

Defendant insurers do not get their own way completely. The review ends the ‘loser pays principle’ in favour of claimants. This means unsuccessful claimants will not have to pay the defendant insurer’s legal costs, if they “behave reasonably”. Unsuccessful insurers will, however, continue to pay successful claimants’ legal fees.

Reynolds Porter Chamberlain partner Alexandra Anderson warned of unintended consequences, however. She said: “Defendants and their insurers may be forced to settle unmeritorious claims, because they may not be able to recover costs from a claimant who brings an action that fails. Insurers and other businesses will be very concerned about defending a claim when there’s a risk that they won’t be able to recover costs when they win.”

Legal expenses firm DAS’s chief executive, Paul Asplin, says the change will make UK litigation more American. He said: “[New York] Mayor Bloomberg says they’ve got a crazy legal system.

It encourages vexatious litigation. There’s nothing to stop people having a go; they know the defendant is going to have to make an offer just to get rid of them, because that is the cheapest economic solution.”

Despite these potential pitfalls, the immediate reaction from the insurance industry has been positive.

AXA claims director David Williams says: “From an insurance company point of view, we have to look across the piste and say ‘do we think it will be better for the man on the street and ourselves, across the board?’ rather than trying to pick the bits we like. When I look at it, I think the answer is yes.”

But the Jackson Review is clearly a blow to the ATE legal expenses market. If premiums are no longer recoverable from the losing side, claimants will have to pay the premium out of their own damages.

This would reduce the number of customers taking out ATE premiums, but would also reduce “access to justice”, legal expenses insurers argue.

FirstAssist Legal Protection managing director, Peter Smith, said: “It means the successful claimant would have to pay ATE premium out of their damages. So the impact is that it reduces the benefit of access to justice to everybody who needs to arrange ATE for their litigation.”

Despite much hope, Jackson gave little to the before-the-event (BTE) legal expenses insurers. In his preliminary report, he raised the prospect of making BTE compulsory for motor premiums, but nothing came of it.

FirstAssist Legal Protection’s head of BTE, Graham Hollebon, said: “There is not one substantive recommendation as to how the greater use of BTE might be achieved.”

Equally unhappy are the accident management companies and brokers who would no longer pocket referral fees under the reforms. Jackson did not mince his words either: he called the claims farming industry “abhorrent”.

The one point that unifies all parties is the concern over the introduction of US-style contingency fees, also known as ‘no win, no fee’ arrangements, where lawyers act for a share of the damages. There are fears it could encourage ‘ambulance-chasing’ lawyers.

The Jackson Review has the potential to transform personal injury – but will it even see the light of day? It would require much legislation, none of which will be brought forward before the general election. A predicted Conservative government might not see it as a priority, and could end up shelving the recommendations.

There is also the prospect of the review becoming watered down, losing much of its initial promise to change litigation costs and claims landscape.

Williams says: “My worry is that lots of people will argue over tiny bits of detail and we will not see any progress for years.”

But as insurers increasingly rail against the ever-increasing cost of litigation, and policyholders foot the bill, many feel this is the industry’s last-chance saloon. IT

The review: key points

  • Referral fees from solicitors to accident management firms, brokers and insurers should be banned.
  • Loser no longer pays the after-the-event legal expenses premium nor success fee of the other side.
  • One-way cost-shifting should be introduced at the expense of the ‘loser pays’ principle. This means the losing claimant, if it behaved reasonably, does not have to pay the defendant’s legal fees. The defendant must, however, continue to pay the claimant’s legal costs, even if successful.
  • US-style contingency fees are allowed, whereby the lawyers act for a share of the damages.
  • Fixed costs for accident claims are extended to £25,000.
  • Hourly rates for lawyers are fixed and should be reviewed annually.
  • Personal injury damages should be raised by 10%.
  • Claimants pay the success fee charged by ‘no win, no fee’ lawyers out of their own damages. The fees will be capped.

Industry views

Paul Asplin, chief executive, DAS

“I think there is a future for after-the-event (ATE) insurers – I don’t think anyone will take up Jackson’s suggestions, so I’m very confident. This flies in the face of what the government has been saying. The Ministry of Justice has made it perfectly clear that it supports ATE and the recoverability of ATE. It has said that very, very clearly, and there is no reason why it would change its mind.

"The biggest shock is that Jackson thinks it is a good idea to have the American legal system in our country. You only have to look at some of the campaigns being run in the States right now; Mayor Bloomberg in New York is very vocal on this subject.”

John McQuater, president, Association of Personal Injury Lawyers

“While Lord Jackson’s report pays lip service to the importance of ensuring victims of personal injury are properly compensated, in reality there is very little in it that helps injured claimants.

“An emphasis on the cost to defendants of litigation misses the point that it is the defendants who generate claims through their own negligence.

“Claimants do not ask to be injured and, when they are, defendants and their insurers routinely erect every barrier possible to prevent them claiming the compensation that they need and to which they have a right.”

Lord Jackson

“I would be naïve to say that it is a thought that has never occurred to me and that I had not lost a few winks of sleep on this particular topic.

“I have devoted a very large amount of time over the last 12 months to reviewing these issues … And yes, I very much hope that the recommendations will be implemented.”