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Practical Impact of the Jackson Report on UK Claim Management Companies

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Published: 26Mar2010
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Introduction

In November 2009 Lord Jackson published his recommendations for the future of small value RTA claims and the referral system that has been developed around the market over the last 25 years.

The implications of the report are far reaching and in affect the operations of all claims management companies.

History

Upto 2001 the market in small value RTA claims was diverse and unregulated. Ultimate referral sources could refer claims to accident management companies or Solicitors (or both) and there was no hard or fast rules as to legal protection for the claimant.

Some Solicitors used the then little known system of After the Event (ATE) Insurance, some relied upon Before the Event (BTE) insurance and some relied upon their own risk assessment procedures without putting claimants on any kind of legal protections cheme.

It should be noted that at this time the paying of referral fees by Solicitors to any referral source was banned by the Law Society, although the rule was flagrantly ignored by all and sundry.

The Woolf Reforms 2001

In 2001 Lord Woolf dissected the entire process and created the Access to Justice Act which effectively brought about the process known as "No Win No Fee" (NWNF) a much maligned, misunderstood and abused process.

Within the NWNF regime it was decreed that on the basis that a claimant was an innocent victim, access to justice should be free. The claimant should not have to pay anything to obtain compensation for injuries he sustained at the hands of another person or company.

All of this was subject to the indemnity principle whereby a claimant can only recover losses that he has sustained as the result of the accident, i.e damaged car, replacement car, injuries and legal costs. If the claimant is not responsible for legal costs then the negligent driver is not responsible for them either.

Solicitors could enter into Conditional Fee Agreements (CFA) with a claimant, supported by ATE Insurance that ensured that if a client made a claim for compensation:

The Solicitor would carry out all work for the client without charging, irrespective of how long the claim took to settle - The Solicitor would put in place an ATE policy for the client - So long as the claimant gave all required assistance he could never be responsible for costs irrespective of whether he won or lost the claim.

If the claim succeeded:

The claimant would receive 100% of the compensation award. - The Solicitor could recover a fixed fee for costs of £1200 plus claim a success fee of upto 20% of the £1200 costs award. - Recover the premium for the ATE fee. - All of these costs were payable by the negligent driver's insurance company.

If the claim failed

The claimant received nothing in compensation. - The Solicitor recovered his costs from the ATE policy (but no success fee), along with the premium for the policy itself. - The policy would pay for the othersides costs.

Hence the term NWNF. If the client wins there are no fees to pay, but the regime should have been called No Win No Fee, Loss No Fee because the claimant was never going to pay anything, ever, unless he was telling lies all along.

However this regime has been extremely unpopular with Insurance companies as they are left to foot the entire bill for what are in the main low value compensation claims. They have been lobbying to have the regime changed almost since 2001 and now with the Jackson report they have succeeded to some greater or lesser degree.

The recommendations of the Jackson Report (as pertinent to this market)

Lord Justice Jackson has made the following recommendations for the market:

Ending the "indemnity principle" - Leading to the scrapping of ATE Insurance - Which in itself leads to the scrapping of CFA's - Bringing about the use of Contingency Fee Agreements (COFA's) - The implementation of "1 party cost shifting" - The banning of referral fees - An uplift on damages by 10%

By scrapping the indemnity principle, Lord Jackson is making the relationship between the claimant and the Solicitor private, meaning that legal costs no longer form part of the compensation claim but are a separate item recoverable between the Solicitor and the Insurance Company.

By scrapping the Indemnity principle and bringing in the "1 party cost shifting" regime, Lord Justice Jackson is releasing the claimant from the risk of losing the claim and facing a cost bill from the Insurance Company.

Even if the Insurance Company successfully fights the claimant's case, they will not be able to recover costs, thus freeing the claimant from the risk of costs and ending the need for an ATE Insurance policy.

It also has the effect of bringing in American style Contingency Fee Agreements, whereby the Solicitor will still act for the claimant for free until the end of the case, but at that point will be entitled to a percentage of recovered damages, the percentage charged being based upon the risk of success.

This effectively ends the NWNF regime.

So now in the new regime, if a claimant makes a claim for compensation:

The claimant enters into a COFA with the Solicitor and agrees a success percentage. - There is no need for any Insurance policy - The Solicitor works for free until the successful conclusion of the claim.

If the claim succeeds:

The claimant will relinquish an agreed percentage of his recovered damages to the Solicitor - The Solicitor will separately recover costs on a sliding scale from the Insurance company (much reduced from previous costs regime).

If the claim fails:

The client receives £zero compensation - The Solicitor does not recover any percentage from the client nor recovers the costs from the Insurance Company. - The Insurance Company will not seek to recover costs from the client.

Ultimately, this regime releases a significant costs burden from the Insurance Company.

If LJ Jackson's proposals regarding the banning of referral fees is implemented, Solicitors can not legally pay referral fees to any sources, be it Claims Management Companies and / or Insurance Brokers.

This will have a significant effect on the market generally.

If the banning idea does not come into effect, referral fees generally will be reduced for the entire marketplace, simply because recovered costs, which presently are the basis for all referral payments, will be much reduced and this will have a ripple effect across the entire market.

Paul Manning is the Managing Director of Evolution Legal, a UK based Accident Management Company. More information can be found at http://www.evolutionlegal.com

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