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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).
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.
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.