Following the conclusion of Callery vs Gray in the Court of Appeal, it is now clear to Lord Woolf, the Master of the Roles and others hearing the case that a major question has emerged: are condition fee agreements (CFAs) for personal injury cases, especially fast-track cases, dead in the water?
Now that the introduction of a two-stage success fee is almost certain – the proposals appear to be a nil or almost nil success fee until liability has been accepted or denied during the personal injury protocol period – where does this leave firms that have accepted the hype, that CFA are the way forward?
What is more, where previously the presumption was accepted, that a higher success fee could reasonably be charged where liability is denied, now there will be a significant cap. Leading counsel have proposed that significantly higher success fees at the end of the protocol period where liability is denied should not exceed 10%.
So why contemplate using CFAs at all?
The idea, unsupported directly by any statute or rule, that success fees compensate firms for lost cases, has clearly been shown up as false. Its proponents based this erroneous idea on a “wish” that simply could not be sustained.
It is proposed that the question of success fees should be looked at case-by-case with a base line; for the vast majority of personal injury cases that settle, it will be nil or so close to nil it makes no difference.
Having been involved from the start in the attempt to negotiate a settlement of recoverability-related issues, I have been interested to see that attempts to somehow sustain success fees at totally unreasonable levels have been so clearly quashed.
It was instructive to witness the demolition of the 20% uplift idea and arguments that success fees before the protocol period with a 5% uplift were far too high, so the starting point should be nil.
The legal profession must now look to further afield than CFAs if it wants to provide the public with legal solutions that are palatable to its own practitioners and defendant insurers.
Firms must establish deeper and better relationships with after the event insurers for both sides' costs and providers of working capital. There is now an urgent need to fill the enormous gap created by the scaling back of legal aid. And there must be wider security for the firm itself as far as the costs for both personal injury and commercial matters are concerned.
This is the death knell for large success fees and possibly for CFAs in personal injury matters. It is time they faced up to reality.
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Bob Gordon
Director, Greystoke Legal Services
The great VAT swindle
Now that we insurance intermediaries are unpaid tax collectors, can anything be done to enable us to claim back input VAT from the Customs and Excise Department?
It is unfair that intermediaries are unable to claim back VAT on essential purchases for their businesses such as stationery and computers. Other similar trades, such as estate agents, travel agents and the like, are unable to claim back input VAT on business purchases. Is it because we do not collect VAT and would therefore receive a monthly cheque from Customs and Excise that we are unable to register for VAT?
When travel agents complained that the rate of tax for travel insurance sold by them was at 17.5%, as opposed to the 5% insurance premium tax (IPT) charged by intermediaries, the rate of IPT we had to charge was increased to 17.5%. Surely we could use this argument to allow us to get back input VAT from Customs and Excise.
Perhaps once the General Insurance Standards Council (GISC) has finished registering us all they can look into this VAT swindle and actually do something for intermediaries to justify the 0.1% they currently charge us.
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Nick Beere
Partner, Morton Michel
London
Cat's out of the bag
Regarding the story titled “Armageddon days ahead for brokers” (Insurance Times, June 7):
Surprise, surprise! For months and months, Alan Gavaghan, deputy chairman of Willis and British Insurance Brokers' Association (Biba) and ex-Insurance Brokers' Registration Council (IBRC) chairman, has claimed that complying with the requirements of the GISC would not be unduly onerous for small brokers. Then Hugh Warren, chief executive of Willis Commercial Network, stated in last week's Insurance Times that “brokers can easily become registered members of GISC, but they will find it very difficult to comply”.
No wonder Gavaghan, national brokers and Biba, dominated by the big boys, were so keen on the success of GISC. Now that it would seem they've achieved their goal, no doubt Biba chairman George Nixon will instruct Mr Warren to keep his mouth shut until any possible challenge has run its course.
Warren has decided to let the cat out of the bag as to the fate of smaller brokers, who may now wish to re-consider their membership of Biba. For, if Warren is right, it has not acted in the best interest of its smaller members. They should consider the alternatives.
They need someone to speak for them with some conviction, someone who believes in their role in the distribution of insurance and will represent their interest.
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Bryan Whicher
Whichers Boylan & James Insurance Brokers
Coulsdon, Surrey
Right to comment?
Malcolm Tarling of the Association of British Insurers (ABI) must get this year's prize for misunderstanding a complex issue for his comment made in the Sunday Times (May 20).
In an article about after the event (ATE) insurance, Tarling is quoted as saying: “The size of premiums are unreasonable.”
This quote comes just weeks after John Parker of the ABI jointly signed a letter with Andrew Parker of the Forum of insurance Lawyers (Foil), which very strongly criticised the ATE market.
Why does Tarling think that he is qualified to comment on the underwriting premiums for ATE insurance – he has probably never underwritten an ATE risk and I think for him to comment in the way he has done is irresponsible and plain stupidity.
The history of this class of insurance clearly shows that, from 1995 to now, the underwriting results of most of the ATE schemes in existence have been very poor and that each year, as the tail begins to become apparent, the premiums have needed to rise. I believe that these increases will continue to be needed for some time to come – in this respect, this is not any different to the current liability market.
There are industry talks attempting to find a resolution to disputes between liability and ATE insurers. These talks are being co-ordinated by Alistair Kinley of the ABI and, to his great credit, he is making some progress.
At least Kinley is trying – other staff at the ABI should shut up and refrain from making inflammatory and ill-informed comments like the ones that have already been made.
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Chris Wait
Underwriting director,
Temple Legal Protection
Guildford
