The price of the cost war

AN agreement reached with the Civil Justice Council last month by insurers, lawyers, academics and the ABI set down limits for success fees for claimant solicitors in motor claims cases. This follows a similar agreement reached with the council last December on fixed fees for pre-court proceedings also in motor claims.The insurance industry seems to be the winner in what the Civil Justice Council has dubbed 'the costs war' as benchmarks have been set on both the level of fixed fees and success fees.An increasing number of law firms are moving away from the traditional hourly fee to an all-in-one price that allows insurers to take control of their legal expenses and budget more accurately.The move to cap fees is in response to what insurers see as spiralling legal costs driven by a burgeoning claims culture and an above-inflation rise in hourly fees.The figures are disputed, but a report in January 2003 for the Civil Justice Council on road traffic accidents claims says that in just 18 months solicitors' base costs in non-litigated cases, that is the vast majority of their work, rose 25%. This is matched by anecdotal evidence, which suggests hourly rates in some areas have shot up from £70 to £130 in four years.And it is the insurance industry that is picking up the tab.Norwich Union head of technical claims Dominic Clayden says: "The process of working out how much should be paid is Victorian. The courts look at the going rates in the area and pick a figure. "Each court is different, but basically they go to local solicitors, do a survey of what they think should be paid and base the figure on that. Neither the insurer nor the paying public is asked."I can see no justification for it."

Grading consensusAlthough both agreements are exclusive to motor claims, they represent real progress in a dispute that until now had to be decided in court.Allianz Cornhill head of Lawphone Sheena MacGregor says: "There is now a consensus about grading to be put in place. This will allow cases to pass through the courts more easily and court time will be released."In a nutshell, the fixed costs scheme will limit the level of costs for cases below £10,000 to £800 plus between 15% and 20% of the damages.The cap on success fees allows defendant solicitors to claim 12.5% on top of their costs for successful cases that are settled out of court and 100% for the tiny percentage that have their time in court.One of the side effects of these changes could be to force smaller personal injury lawyers out of business, so reducing choice in the market. Larger firms should be able to balance the pain of doing complicated cases for 12.5% against the revenue earned on the simpler cases - small firms won't.But this doesn't mean the big firms are accepting the changes without a fight. Thompsons Solicitors head of marketing Tom Jones says: "I hope the recent figures are not seen as a victory by the insurance companies.

Insurers' favour"Ultimately it is the interest of the claimant that should be at the core of this process. That will be the measure of the success."If we see indications that people are not getting the compensation they deserve because people are pushing cases through then it will be a failure."On the whole I think the benefit of fixed costs are in the insurers' favour, not the claimants'."The situation could get worse for the legal world. Insurers are asking the Civil Justice Council to look at costs in both employers' and public liability cases. The target after that could be after-the-event insurance.Clayden says: "The amount the solicitor and claimant gets has to be something we as a society can afford. The reality is that the biggest single influence on premiums is claims costs. "We run the risk of getting into a similar situation as in Ireland where insurance is becoming prohibitively expensive."A quick survey of the Irish motor insurance market backs up the statement. A 25-year-old taking out his first motor policy on a five-year-old Escort would pay about £800 if he lived in London, but £1,750 if he lived in Dublin.Clayden says: "If the impetus remains it will still take about two years to sort out through negotiation. If not, we will have another round of test cases."