From 1st April 2013 the Government is introducing some significant changes to the way individuals (a “Claimant”) make claims for compensation in respect of Personal Injury (e.g. after a road traffic accident, an accident at work etc). The regime from 1st April 2013 will be far less favourable to the Claimant, and far more favourable to the party defending the claim (“the Defendant”) who is usually an insurance company paying out on behalf of a motorist/employer in respect of a policy of insurance.
THE CURRENT SYSTEM
Under current rules, a Solicitor can act for a Claimant under a “no win no fee” agreement which is called a Conditional Fee Agreement (“CFA”).
Under the CFA the Solicitor will not charge the Claimant for his work if the Claimant does not succeed with the claim. However if the Claimant wins the case, the Solicitor can claim all his costs from the Claimant, and also what is known as a “Success Fee”. The Success Fee is a mark-up or enhancement charged by the Solicitor for taking the risk that he or she might not get paid anything at all if the case is lost. The Success Fee can be anything up to 100% (and occasionally can be even more than 100%) and in road traffic accident claims is usually 12.5%.
For example if the Solicitor’s costs are £1,000, and he has a Success Fee of 12.5% in the CFA, then the Solicitor will be able to claim an extra £125 by way of a Success Fee in order to make the total costs £1,125.
Usually the Solicitor will recover most if not all of these costs (including Success Fee) from the Defendant, as the Defendant will often have insurance (e.g. motor insurance, employer’s liability insurance) to cover the costs of losing. Hence in many CFA cases the Claimant will get 100% of his compensation as he will not have to contribute towards his legal fees as these are often recovered in full from the Defendant.
In the event that the Claimant loses, although he faces no liability for his Solicitors’ costs, he may face the risk of having to pay the Defendant’s legal costs. To cover such a risk, usually a Solicitor will obtain for the Claimant an After the Event Insurance policy (“ATE Insurance”) which will cover the Defendant’s costs if the Claimant loses. The premium is often deferred until the end of the case, and then recovered from the Defendant if the Claimant wins.
Fees for medical reports etc (known by Solicitors as “disbursements”) do have to be paid by the Claimant up front, but are usually recovered from the Defendant in the event that the Claimant wins his case. In fact if the case is clear cut the Defendant may agree to pay these fees up front in any event.
The current regime is therefore popular with Claimants as they can without much risk or expenditure run a good personal injury claim against a Defendant. In the event of a win the Claimant usually get 100% of his compensation plus his costs paid for by the Defendant (including the Success Fee and the ATE Insurance premium). In the event of a defeat, the ATE Insurance will cover the Defendant’s costs and the Solicitor acting for the Claimant will not get paid.
WHY CHANGE THIS SYSTEM?
The Government perceives that due to the very low/minimal risk that Claimants have in pursuing personal injury claims, that often Claimants will bring cases without much merit and/or pursue exaggerated claims against Defendants. As a result this leads to insurers footing the bill for high legal costs. The Government believes that as a result the insurers pass these charges onto their customers by way of higher insurance premiums. The Government has wanted to reduce the number of claims made, and to limit the costs involved in those genuine claims that are pursued so that insurers spend less on such cases and then pass on such savings to their customers by way of reducing insurance premiums.
THE NEW SYSTEM
(a) Recoverability of the Success Fee
Under the current regime the Success Fee is recoverable from the Defendant if the Claimant wins. Under the new system from 1st April 2013 the Claimant will have to pay the Success Fee even if he wins. The Success Fee will be limited in many cases to 25% of the total compensation won by the Claimant.
(b) Recoverability of the ATE Insurance Premium
Under the current regime the ATE Insurance Premium is recoverable from the Defendant if the Claimant wins. In respect of any ATE Insurance Policy started or incepted on or after 1st April 2013, the premium will not be recoverable from the Defendant even if the Claimant wins. The Claimant will have to bear the costs of the ATE Insurance Premium, which depending upon the nature of the case and the length of the case could cost many hundreds if not thousands of pounds.
(c) Damage Based Agreements (“DBA”)
The new rules do introduce a new alternative method of funding called a DBA.
In essence the Solicitor under a DBA agrees to take a certain percentage of the Claimant’s damages by way of his costs. For example the Solicitor may agree to limit his costs to 25% of the Claimant’s compensation. If the Claimant wins £1,000, then the Solicitor will charge £250 in this example. However this sum will be recoverable in many cases from the Defendant. Hence the Claimant may get all of his compensation if the costs are recovered from the Defendant.
In most cases there will be a cap of 25% of the Claimant’s compensation for the Solicitors’ legal costs.
PROBLEMS WITH THE NEW SYSTEM
Claimants who would under the current regime usually recover 100% of their compensation under a CFA, will after 1st April 2013 have to pay some of their compensation to their Solicitor as payment of the Success Fee and will also have to pay some of the compensation also towards the ATE Insurance Premium. Hence Claimants will not get 100% of their compensation as many Solicitors currently often claim or pledge.
Solicitors under the new regime may be reluctant to take on high risk cases as there is only a limited Success Fee of 25% in most cases, and this may not adequately reflect the risk that a Solicitor takes in running the case under a CFA.
Solicitors are less likely to take on lower value cases, as it will not be worth their while doing so financially as the Success Fee may be greater than or equivalent to the compensation that the Claimant may get.
Solicitors may also be reluctant to sign Claimants up to DBA’s in lower value cases, as the Solicitors’ costs will be very limited and not adequately reflect the cost or work of the Solicitor involved.
Grant Shackleston, head of our Personal Injury Team, advises “If you have a potential Personal Injury claim then act now. Come and see us as a matter of urgency and preferably as soon as possible before 1st April. If your claim is a good one we can get you signed up to a CFA and get your ATE Insurance Policy prior to 1st April 2013 so that you can take advantage of the current regime. Provided your CFA is signed before 1st April 2013, and the ATE Insurance Policy started before 1st April 2013, the current rules will continue to apply so that the Success Fee and the ATE Insurance Premium are recoverable from the other side in the event that you win the case.
For more advice and information please ring Daven Naghen on 01775 722261 or email email@example.com or write to Dav at 23 New Road, Spalding, Lincolnshire PE11 1DH.