Once upon a time, claimant and defendant solicitors in personal injury cases used to get along. Now fees have driven a wedge between them. Mark Harvey and Hugh Price look at the issues from each side

A long time ago claimant and defendant lawyers got on well together. Some regularly acted for both sides in much the same way that barristers and experts still do.Where did it all change and why?To some extent the answer lies in the withdrawal of legal aid for non-clinical negligence personal injury claims. This necessitated the introduction of conditional fee agreements (CFAs) and after-the-event (ATE) insurance to protect adverse costs orders.The concept is quite straightforward. Instead of the claimant's solicitor charging a fee regardless of the outcome of the claim, he recovers only costs if the claim succeeds, namely no-win, no-fee. In return for the risk taken, the solicitor is entitled to an uplift on his costs, usually expressed as a percentage.Initially, the claimant had to pay the extra amounts, but in April 2000, the Access to Justice Act [2001] changed that, so the loser now pays for the uplift and the ATE premium.At the start, cheap ATE insurance was available at £85 per case (no doubt a loss-leading, special introductory offer) and the claimants paid up to 25% of their damages to their solicitors to cover the risk of losing. But the government soon decided that it wanted the insurance industry to pay for all of the costs of personal injury litigation. In came "recoverability" of the ATE premium, which then became more available and also much more expensive, together with the uplifts for risk: the success fees. Significantly, liability insurers faced an unexpected additional cost of as much as 50%-70% above the pre-April 2000 burden.This is where it all started to go wrong. Insurers felt that they were being asked to pay an unnecessary 'bonus' to claimant lawyers who were lining their pockets at their expense. Into the fray marched "claims farmers", such as Claims Direct and The Accident Group, putting forward questionable claims and innovative arguments about 'premiums'.All of this was bound to cost the insurance industry huge sums of money and so it had to take a stand. Mark Harvey is a partner in the claimant division and Hugh Price is a partner in the insurance division at Hugh James

Where claimant solicitors standThe bad news is that the solicitor now has a personal stake in the outcome of the claim. Some may say that this is a good thing - "let them carry the risk" - but the commercial realities are that the success fee is far from a bonus. In fact as the Court of Appeal and the Lords accepted in Callery v Gray that it amounts to a levy to cover those claims that are lost or abandoned where no fees are recovered at all.Unfortunately, the CFA regulations could have been better drafted. They are intended to protect the client from being exploited. but, while doing that, any breach of the regulations has enabled defendants to successfully challenge all of the claimant's costs.This has given a not inconsiderable windfall to the insurer while the claimant's lawyer recovers nothing, a disproportionate consequence for a minor irregularity.So what is needed? Certainty, sensible pricing and a reduction of expensive satellite litigation which sees the cost negotiators, no one's friends, getting richer.To achieve certainty we should start with the indemnity principle. This works both ways, in that where an insurance lawyer wins he can recover only the hourly rate agreed with his client, while the claimant has insured against payment of the full rate. New regulations are needed to make the charging agreement simple and transparent. Any breach should mean the paying party is not responsible for the additional liabilities, but still has to pay the base costs.In other words the system should be simplified, so that minor errors affect the recoverability of the additional liabilities, but not the entitlement to base costs. In this way the windfall element goes.Plainly, the government is determined that the new costs regime should succeed. Its objective is access to justice for all. If claimant lawyers do not get a fair return for their efforts they will give up, leaving the stage set for unregulated claims management firms to mop up. Anyone who saw the recent BBC Watchdog programme's investigation into the activities of The Accident Group would be horrified at the prospect of unscrupulous unregulated businesses stepping in.ATE insurance is a new concept which is taking some time to settle. Initially the Law Society supported a scheme whereby all CFAs would require cover regardless of the position on liability. In this way the policies would be attractive to the market as most cases are settled without a claim, thereby perpetuating the sound insurance principle that the many pay for the few.In practice, claimant lawyers are being challenged as to the need for ATE cover with the inevitable result that it is often only obtained where liability is contested. The effect is an inevitable hardening of the premium rates.

What defendant solicitors sayWhere liability is straightforward or is admitted early on there is no justification for a success fee being paid at all. After all, there is no element of risk to the lawyer. Alternatively, the sizes of the uplifts are much too high where the claim is of low value or settled reasonably quickly after proceedings have been brought. Often insurers have to take an economic viewpoint and so claims are settled even though a good defence may be available. As for the ATE premium, again if liability is accepted early on and there is no prospect of an adverse costs order then ATE cover is not necessary.Insurers also have to look at the economics of these success fees as a whole and not in isolation. While even an average Halloran 5% success fee uplift may appear to be a relatively small sum, when multiplied by the thousands of third party injury claims brought each year, the cost to the insurance industry runs into millions of pounds.Insurers appreciate that claimant lawyers should be fairly paid for what they do, but they should not be overpaid. Unfortunately, the activities of claims farmers are increasing. Usually their representatives are paid by commission on referrals which encourages the sort of abuse as seen on the BBC's Watchdog.In short, the insurance industry had no alternative but to challenge the new system wherever possible. It had to show its resolve to prevent expensive abuses.It should also be remembered that ultimately it is the business community and the general public who will have to pay for these additional costs by way of increased premiums. It would be irresponsible for insurers not to challenge the new system where it thinks abuses are occurring.

How to co-operate on claimsIf both sides can better understand the other's point of view progress, can be made. The regulations need to be simplified to ensure that a fair sum is paid to reward the claimant lawyer for the risk he undertakes without penalising the insurer, while giving certainty to the insurer in its reserve.A staged success fee formula taking into account the various elements should be capable of agreement.The elements would be:

  • the stage at which the claim is resolved
  • the type of claim
  • motor
  • employers' or public liability
  • industrial disease
  • Part 36 risks.
  • Similarly ATE premiums could be staggered.In this way, the ATE insurer has some certainty of recovering premiums, while the liability insurer knows it is not paying for unnecessary cover and is further rewarded for any early concessions on liability.One final point. Much has been said and written about spurious claims being brought, which have no realistic prospect of success. It is a troubling thought that in all probability there is an ATE insurer backing these claims. Perhaps the industry itself has the answer to this dilemma in its own backyard.