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Why claimants pay 25% of any compensation settlement towards their legal costs

By Ian Morris | Updated January 16th, 2024

196 questions have been answered on this subject - ask us your question

Prior to the 31st March 2013, claimants pursuing claims for personal injury compensation on a no win no fee basis retained 100% of any settlement awarded to them with no deductions, and paid nothing if they lost their claim.

At that time, the system obliged 3rd party insurers to fully cover their legal costs and insurance costs as well as pay them compensation for their injuries and losses. From 1st April 2013, the law changed and successful claimants were obliged to help towards the cost of their claim by contributing up to 25% of their total compensation settlement and as Solicitors could no longer recover the cost of the ATE insurance premium in a claim, the claimant must also repay the cost of any such policy should they win.

The current no win no fee claims system still guarantees that claimants pay no costs whatsoever should their claim for compensation fail (including for any ATE premium cover put in place).

100% no win no fee removed by The Laspo Act

Sadly (in our view and that of the claimant personal injury sector) the Government bowed to pressure from the Insurance sector and introduced the LASPO Act 2012 (often referred to as the Jackson Reforms) effective from 1st April 2013. This changed the way No Win No Fee claims worked and who paid what when claims were won.

No Win No Fee legal services remained available to claimants, meaning that they could still pursue a claim without having the worry that they would be forced to pay expensive legal fees if they lost. However, the outcome if a claimant succeeded and won their claim for personal injury compensation was very different. The main result of these changes from a claimant perspective was that when their claim for compensation succeeded, they could no longer oblige a 3rd party to cover their legal costs in full.

To compound the problem, personal injury compensation solicitors were forced to work on a fixed fees basis and submit claims via the Portal system. This saw the fees they received from losing insurers for their legal work undertaken in succeeding with a claim reduced by more than half their previous sum, whilst their work and cost burden remained the same. As a result, the only way to cover the loss created by the new law was to oblige claimants to pay towards the legal costs when they won.

Insurers claimed that the cost burden they faced when losing a claim was too great and that solicitors were greedy, charging excessive costs and benefiting from encouraging claims and maximising claim settlements. As a result No Win No Fee solicitors were also banned from charging losing 3rd parties a success fee and the Government wholeheartedly agreed with the Insurance sector view that successful claimants should contribute to their legal fees.

25% now deducted from compensation

The Government decided that when a claimant succeeded with their claim and was awarded a compensation settlement, they would have to contribute a maximum of 25% of any settlement awarded to them which would be deducted by their Solicitor and used towards their costs incurred for running the claim. Further, successful claimants could no longer claim the cost of the insurance premium (ATE cover) that they had taken out from the defendant insurer and would now be obliged to pay that cost from their settlement in addition to the 25% deduction from their settlement award. It should be noted however, that the specialist partner Solicitor firms who pursue the claims Direct2Compensation claimants, work hard to minimise the deductions from claims.

Why did they do it?

The Government took the view that by changing the law relating to No Win No Fee claims for compensation and obliging a deduction from any successful claim, that they would achieve one of the insurance industries key goals – to reduce costs faced by the insurance companies, who form the vast majority of defendants in personal injury claims. For years, the insurance sector via their public mouthpiece, the ABI (Association of British Insurers) whose members had to pay the injury compensation settlements, special damages claims and legal costs when they lost a claim, had decried the ‘unfair’ burden placed upon them by what they labelled extortionate costs caused by the compensation culture sweeping the UK. Of course, the reality was that there never really was a compensation culture, it was just people exercising a legal right to pursue a claim for compensation when they were injured because of the negligence or actions of someone else.

It is interesting to note also, that during this same period when insurance companies decried their cost burden and tried to place all claimants in the ‘trying it on’ box, that their profit margins continued to rise as did the premiums that they charged to motorists, businesses and organisations. In a bid to further increase their profits, they convinced Government to agree that successful personal injury compensation claimants should pay towards the cost of the claims process. As a result, the Government amended the law so that successful No Win No Fee personal injury compensation claimants were obliged to contribute up to 25% of any compensation settlement towards the costs of the claims process as well as paying for any ATE insurance cover from their settlement. Government framed this change as being a move would benefit the wider consumer public as insurance premiums would decline, saving us all money. The Insurers promised that they would pass on the benefit of reduced costs to them by reducing insurance premiums for Motor, Public Liability, Employer Liability and many other insurance policies.

To summarise, the 25% deduction from compensation element of the LASPO Act 2012 and personal injury compensation claims after 1st April 2013, was brought in to reduce the costs faced by a losing insurer. It’s interesting to see that despite their promises and the lower cost burden that they now face, insurance premiums have not reduced in price. Indeed, premiums have risen way above inflation and profits have followed suit.

It’s still worth claiming

Regulated, compliant personal injury claims management companies such as Direct2Compensation and the expert personal injury compensation solicitors with whom we partner fought hard against the introduction of the new regime. Those of us who work in this sector could see that the changes were inherently unfair and in the favour of the huge insurance firms. Alas the Government pressed on. So whilst it isn’t fair, it is the system in which we are obliged to work. Losing 25% of a claim settlement and having to cover the cost of insuring the claim against failure (ATE), when the whole point of making a claim is because you’ve been disadvantaged by someone else’s negligence is far from ideal, but getting 75% of something is better than 100% of nothing. We fully believe that it is still worth making a claim and the new system just further enforces the point that it is vital to maximise any claim settlement.

ATE premium costs cannot be recovered so must be paid by successful claimants, but only if a claim is won. It is important to remember that ATE cover only needs to purchased if a claimant does not already have suitable cover. Suitable existing cover would be ‘legal expenses insurance’ – also known as BTE (before the event) insurance. It is important to discuss this with your Solicitor before asking them to provide ATE cover for you. Many people have BTE cover already and it can be attached to motor insurance policies, home & contents insurance cover, financial products such as credit cards or through union membership. If you would like to find out more about ATE & BTE insurance cover, please contact us or ask your Direct2Compensation specialist solicitor.

196 questions have been answered on this subject - ask us your question

Comments & Questions

Read on for questions and advice about claiming...

Hi do you have to pay the 25% on your loss of earnings, damage to tools and paying for medication, or just personal injury part?

Most Solicitors will wish to ensure that the claimant is not faced with unreasonable charges and whilst the 25% deduction will come from the total claim – including loss of income/special damages, it is common that the monies recovered for lost or damaged equipment and medical costs are left undeducted.

Dear Ian,

Thank you for providing this wonderful resource and your expertise. It has been a very interesting read.

I pursued a ‘No Win, No Fee’ claim after a car accident. I took out ATE insurance with the Solicitor and was advised that after the unsuccessful claim was closed that there would be no fees to pay due to having this ATE insurance.

I have now been advised approximately 9 months later that the After the Event insurer has refused to pay out on the insurance policy and thus I am liable for a ‘Medical Report Fee’ and an ‘Expert Addendum Fee,’ within 14 days.

Is this enforceable and what recourse do I have from here? At no point was I informed that fees may be due after an unsuccessful claim.

Chris

Have you referred this back to your Solicitors? You should not have to pay any costs for the ATE if your claim failed – so long as you were not found to have acted dishonestly or fraudulently.

Hi. I have an ongoing claim with express solicitors in manchester and they are charging me 33 per cent. Also their hourly rate is 360 pounds. Is that legal?

If the percentage amount to be deducted on success was explained clearly at the outset and you have signed to consent to such a fee, then the Solicitors are acting legally. Morally however, their conduct is questionable! Our Solicitors cap deductions on success at a maximum of 25% of any awarded damages.

The hourly rate issue is not something that would be of concern.

Hi, I have a claim which is nearing completion after getting knocked off my push by a car which had cut a corner on a junction. My question is do my solicitors take their cut out of my special damages ( bike,helmet, loss of earnings etc) aswell as my injury compensation.

The deduction that a Solicitor will take from your settlement will include the full settlement. However, if there is an element of settlement for future loss of income or future medical costs, that element should be left intact.

I could not work out how to reply to your response to my query earlier, so using this method!
Just wanted to say THANK YOU for responding with a clear answer. I have relayed your feedback to my aunt and suggested she considers using your services. Thank you again!
Chris

No problem – we’re more than happy to help and answer any queries or concerns that your Aunt may have about the claims process – whether she chooses to instruct our Solicitors to act for her or not.

I was in an accident and have been offered an £1800 settlement. My solicitor is trying to take 1400 and give me £400! Is this even legal? I’ve been reading that they can only take 25%? Thanks in advance for your advice.

You will need to refer to the initial conditional fee agreement that you signed when instructing the firm of Solicitors to act. Whilst our Solicitors will deduct no more than 25% of any total settlement, some others will have terms that enable higher deductions.

Your Solicitor should be able to give you a copy of your initial terms of engagement and a breakdown of the costs and why they are deducting the sum that they seem to wish to deduct.

Could you please advise in this case. My wife claimed for personal injuries as a result of the car accident, the defendant admitted liability. We then we got a letter from our solicitor that stated that the shortfall in costs is greater than 25% of the settlement for the injuries and that she is therefore not entitled to a refund.

You need to check the terms of the No Win No Fee agreement that was signed at the start of the claim to confirm the maximum deduction the Solicitor could take from settlement. So long as this stipulates the 25% success deduction, you must then refer the Solicitor to those terms.

My wife is in the process of obtaining a final settlement for personal injury claim for £30,000. I have been told we will pay up to 25% of the total.

What is the procedure for her to question the percentage (if they charge that amount). I gave the solicitor witness statements, photographic evidence (before and after my wife’s fall) and a full diary documenting the care needed over a period of 4 months. The defendant admitted liability, so I do believe that I made the claim a lot easier to resolve work wise for the Solicitor.

Depending on the terms of the Conditional Fee Agreement that your Wife signed when instructing her Solicitors, the Solicitor will be bound by what they can or cannot deduct.

Whether or not the Solicitor is willing, or indeed able to reduce the % deduction figure at this stage is unclear, but you can have that conversation with them.

You can ask the Solicitor for a written breakdown of their total costs and disbursements (the disbursements should be recoverable from the defendant in most cases), so that you are aware as to the maximum that they may deduct from settlement (the Solicitor cannot deduct more than their total cost).

Hi could I please ask a question if you win your case for personal Injury or they settle out of court do you receive 70% of your compensation and the solicitor gets 30% . As per the CFA ? The success fee is this included in the final compensation payout (30%) or is the success fee paid out separately? I have been made an offer of say £27500 the solicitor have taken 30% leaving me with £19250 final settlement but then they have claimed well over £25000 for their costs etc and that leaves the solicitor with a very large chunk of the payout Infact more than me . My CFA stated I would receive at least 70% damages so that means they’re took 30% but my success fee says 25% is this separate or does it mean on the whole payout ? So sorry about all the questions I’m so confused . If you can offer any explanation I would be most grateful.

Thankyou for your assistance with my enquiry

Karen

Depending on the terms of the CFA you signed with the Solicitors you have instructed, the total deductions for success should not exceed 25% or 30%. Our Solicitors offer CFA’s that guarantee that our claimants will face a deduction of no more than 25% of their compensation if successful in their claim. Although in rare cases, a client may also have to repay an ‘After the Event’ insurance premium if they succeed, but our Solicitors do not recommend such cover is taken on a routine basis.

Given your comment, it would appear you may have instructed a Solicitor on the basis that they may deduct up to 30% of any total settlement. It is worth noting that this is not illegal, so long as you have been advised of this with clarity at the outset and before you had signed their instructions. It is also worth noting that your Solicitor cannot deduct more than their total costs as the deduction is capped – in this case, either 30% of your total settlement or the Solicitors total legal cost. Whichever is the lower of the two.

Hello, some solicitors claiming 35% as per Conditional Fee Agreement, is it legal? many thanks

Yes, it is legal – so long as it is explained in full BEFORE any agreement is signed. Whilst it is legal, there really is no need for such a deduction to be made. With our Solicitors, the maximum success fee deduction is 25% of total settlement and in the vast majority of cases, there will be no recommendation to take ATE insurance either, so you won’t have to repay the premium price for such cover on settlement if you succeed with us either.

When seeking a specialist No Win No Fee Solicitor, it is wise to shop around and make sure you don’t agree to any deduction higher than you need to.

Hi Ian,

Thanks for the the info. I was wondering if you could help me with a question.
I have to pay to my lawyers nearly a 50% of my total compensation in non recoverable cost. This nearly 50% includes the succession fee. I thought they couldn’t take more than a 25% of my total compensation but apparently that ‘limit’ was just for the succession fee.
I’d like to know if what they are doing is right because frankly I find the non recoverable cost very high and unfair.

Thanks in advance for your help.

Kind Regards,

Cristina

Much will depend on the agreement you signed to formally instruct your Solicitor to act at the outset. Have you checked the CFA that you signed at the outset?

50% is unreasonable and you should formally complain to the Solicitors about such a deduction and the lack of clarity in their paperwork at the outset.

Hello
The 25% for the no win no fee solicitor companies are these including vat or does the injured person has to pay vat to the solicitor on top there so would loose another big chunk?

Thanks

The VAT should be included within the deduction.

Hi a drunk driver crashed I to the car behind me then he crashed into me
I had my two grandchildren in the car with me the drunk driver ran off and claimed his car was stolen but the police now say he has admitted driving while drunk so I claimed through a no win no fee company for injury for myself and my grandkids so we have now been offered a settlement for my two grandchildren

My question is I know we have to pay 25% but do we have to also pay £280 ate for every person in my car ( each time time for the three of us ) that’s paying it three times?

There would appear to be no need for you to all have ATE insurance. If you all have it, you’ll all have to pay the premium. Given the accident scenario, I would be minded to go without such cover as it is unlikely to be of benefit.

Hi team,

If a person admits liability to the police about a dog attack on me, can I pursue the claim myself for personal injury and just get hourly legal advice where required? 25% fixed fee on a straight forward case seems crazy. Is contacting their insurance directly a bad idea?

Thanks

The benefits of having any claim for injury compensation handled by specialist personal injury Solicitor are clear. Although the 25% deduction at the end of settlement is a possibility, you must remember that the deduction should be UP TO 25% and not necessarily 25%. The deduction is capped and the deduction must be a maximum of 25% of any awarded damages or no more than the total of your own Solicitors legal costs – whichever is the lower. A specialist Solicitor will ensure that your legal rights are upheld and that your injuries are properly accounted for along with any losses or costs incurred as a result of the injuries sustained. Therefore you’ll be sure that any settlement will be maximised in your favour. There is a misunderstanding in the wider public regarding the amount of fees specialist personal injury compensation Solicitors obtain when acting on claims. Firstly, on a No Win No Fee basis, Solicitors won’t receive any costs if they don’t succeed with a claim and they absolve the claimant from facing liability for defence costs in such a situation. Secondly, due to Government changes to the legal system regarding personal injury compensation, specifically Solicitor fees and how much liable Insurers must pay, Solicitors are now forced to act on very limited fixed fees with the defendant insurers and have been forced to have to take a deduction from claimant settlement as the Insurers argued (successfully) that a successful claimant must contribute to their own legal costs.

You can of course represent yourself and enter in to a claim directly with a 3rd party insurer – if you know their details. However, you need to remember that the defendant insurers will have legal professionals in place acting against your claim.

If a person admits liability in police interview for a big bite attack, should the solicitor reduce the 25% fee as there is less risk in the case?

If you are referring to a Criminal Injuries Compensation Authority (CICA) claim, the Solicitor cannot recover ANY fees whatsoever from the CICA. Therefore, their only source of income would be by succeeding and obtaining 25% of the claim value. As such, it is unlikely to be viable for the Solicitor to reduce the fee on such a claim.

Can’t they claim from insurance the costs if they win?

Claimants can no longer recover all of their legal fees if they win their claim. As of 1st April 2013, when the LASPO Act 2012 came in to force, claimants must contribute to their own legal costs. This is capped at a maximum of 25% of their awarded settlement or the total of their own Solicitors costs (whichever is the lower). Furthermore, claimants can not recover the cost of ATE insurance either.

Do personal injury solicitors minus the 25% fee first and then the ATE premium? OR
Do they minus the ATE premium first the the 25% fee?

Because if they took away the ATE premium first, it would be beneficial to the claimant.

The ATE premium will be deducted from the total settlement value and the Solicitor can then deduct up to 25% of the remaining settlement.

Remember that the deduction % is capped and cannot exceed the total of the claimants own Solicitors costs.

Hi, im currently pursuing a claim for a car accident For loss of earnings and injury, Does the 25% fee come off the total claim or just the injury claim? Will i have to pay 25% on loss of earnings?
Many thanks paul

The 25% deduction will come from the total settlement. That would include previous loss of income or other costs. However, should any element of the settlement include future loss of income or future medical/rehabilitation bills, there should be no deduction from that element.

Hi,
I have been contacted by a company today called visible legal about claiming back fees that a solicitor acting on my behalf last year may have taken off my settlement figure ( car accident). This caller claimed the solicitors are paid by the third party and there is 25% of final settlement set aside for me. They were asking me to sign some documents re this. Is this a scam?
Thanks in advance,
Nicola

It would appear to be an illegitimate call that you have received. The Government changed the laws and systems relating to personal injury compensation in 2013. Prior to that, a claimant would pay no costs if their claim failed, but could recover ALL of their legal fees on top of any compensation if they won – therefore retaining 100% of any compensation. The changes implemented prevented a successful claimant from recovering all of their costs from the defendant and also reduced the amount that Solicitors could be paid for their work. This led to the requirement for claimants to contribute up to 25% of any compensation awarded to them towards the costs of the claim if they won. So long as your Solicitor informed you of this at the outset and it was stated clearly in the Conditional Fee Agreement that you signed to instruct them, they have acted correctly and there will be no fees to recover.

The only caveat to this would be the way that the 25% deduction is capped. The deduction must capped at the lower of one of two criteria: Either 25% of the total awarded settement or the total of the claimants own Solicitor cost as a Solicitor CANNOT deduct more than 25% of the awarded settlement. As an example, if a claim settled for £20,000 and the claimants Solicitors costs were £6,000, the Solicitor could only deduct 25% of the total (£5,000). If the Solicitors costs had only been £3,000, the Solicitor would deduct less than 25% as they could only deduct £3,000.

Does the Solicitors have rights to take 25% of my losses and injury or just the injury?

Your Solicitor can deduct up to 25% from the TOTAL settlement. In most cases, it is only future loss of income that cannot face deduction.

Hi Ian
I was involved in a no fault accident with the other side accepting full responsibility. 2 weeks after the accident I applied for personal injury damages and explained that as the other side had already accepted responsibility a “no win no fee” arrangement did not seem correct. The large legal firm would not move except to say the 25% is a maximum. The case is over and they have charged the full 25% deduction and the ATE insurance. Do I have claims for a reduction? I have tried to discuss but they will not move.

If the Solicitor that you instructed failed to advise you that you would face an ATE deduction (if successful) as well as the 25% deduction, they should – at the very least – be forced to waive the ATE premium fee as you have not been advised of it – or agreed to it.

If you have not already done so, you could raise a formal complaint to your Solicitor (check their website for their complaints procedure policy). If the complaint fails to resolve the matter, you could then escalate it to the regulator and legal ombudsman service.