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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...

What happens in the case that you win but the compensation payment awarded is less than the legal estimate to the point of settlement

When settlement negotiations are undertaken, a settlement value will be agreed upon by both parties (unless the settlement is decided in court). To reach this agreement, both parties will look at medical evidence and the contents of any medical experts report. Although a settlement estimate may be provided by a Solicitor at the outset of a claim, or even during the claims process, it must be remembered that the estimate is only a guide – and any competent Solicitor would ensure that any estimate they offer is seen as just that – an estimate. Although case law and judicial guidelines are applied in all settlement negotiations, each claim is settled on the specific details and evidence available to that case and this can sometimes mean that a final settlement award is lower than had initially been anticipated.

Can my solisstor claim VAT? and Insurance premium tax? if so does that come off my fee settlement ? Thanks

Our Solicitors include VAT within any deduction rather than adding it on top – so our clients never contribute any more than 25% of any compensation towards their costs if they succeed.

Some Solicitors do sell clients After the Event (ATE) insurance to claimants and if so, whilst you won’t pay for it if you don’t win, the premium will be deducted from your settlement on top of any % deduction if you do succeed. Again, our Solicitors do not routinely recommend or ‘sell’ such policies to claimants as they are essentially a needless cost burden for clients.

In a medical negligence claim, sought to take 2-3 years to settle, the estimate costs from the solicitors are around 250K, does this sound adequate?
Thank you.

£250k is certainly a large settlement value and a claim period of the likes of 2-3 years would certainly seem a reasonable period of time for such a claim.

My children dad died in a RTC – claim was valued over a 100k for my children – now insurance are saying we will not win as was going over speed limit and offered 35k final offer – or go to court – so accepted the 35k reluctantly and now I find out 25% of this is to be took away and £1650 for ATE insurance so almost 10k taken of the children are both still in school one primary one high – can they take this much from a childrens claim – I thought it was recovers from the other side – the claim was made in 2020 but I was not really taking in everything with what had just happened a few months earlier – do I just have to hand over 10k as I really do not feel as if we won the case either

Have the Police confirmed that the speed limit was being exceeded at the time? Also, have they confirmed that the fault for the incident rests with the 3rd party?

We were in a non fault rtc and have made a personally Injury claim with our insurers recommended solicitor.

I have been awarded £1261.64
This includes travel expenses, physio costs and whiplash.

The solicitor is deducting 25% of that total which is £315.41

This then leaves £946.23

The solicitor then wants to deduct the physio costs from that leaving me with a grand total of £618.23

Are they within their rights to deduct the 25% from my travel expenses and physio costs? Then to take the full amount of physio costs back off my final amount?
For example, if they had paid the physio costs before deducting the 25% I’d be over £80 better off. It makes no sense

When was your accident? If it was after 1st June 2021, you will be on the new scheme where claimants are facing much reduced settlements. If the accident was before that date, the settlement seems too low and the amount deducted seems unfair.

You mention that your Solicitor arranged the physiotherapy sessions – did they give you warning that part of your settlement would be deducted for the costs? You should question them on this point and ask if they receive any commission for referring you to the medical provider.

Hi when you win a personal claim what percentage do you pay all together?

In terms of the level of a % deduction that a claimant will ‘pay’ should they succeed with their claim, it will depend on the nature of the agreement that they have signed with their Solicitor or claims company.

With our Solicitors, they operate on the basis of no fee if there is no success and for personal injury claims, there is no more than 25% of awarded damages that will be deductible (in matters for work related stress compensation, that will increase to up to 35% due to the complexity of such matters and the amount of work required).

I was a passenger in a RTC. we were hit from behind and I got whiplash snd had to go to the doctors. I was contacted by the drivers insurance solicitor who said they would deal with my claim and it would cost 30% of the claim. They have been useless and it has taken a year to get an offer of £360 plus £480 that they said I had to pay for the chiropractor that there doctor said I needed. The total with what I had to pay out was £480 and the total offer is £840. The solicitor is saying they are taking 30% of the full amount including day I had to pay myself to the chiropractor. Surely this is not right as they told me I had to pay it and now want to take 30% of they money I had to pay out leaving me £144 out of pocket.

Sadly, the outcome you have received is exactly the outcome that the claimant side of the personal injury compensation sector predicted would happen when insurers convinced the government to change the way that whiplash and soft tissue injury claims arising from road traffic accidents were handled. The changes that came in to effect on 1st June 2021 meant that Solicitors would not be able to recover legal fees on any claim for soft tissue injuries after a car accident unless the claim value exceeded £5k. Sadly, the likelihood of any whiplash claim reaching such a value (typically they were previously averaging around £2-£3k) meant that claimants could no longer instruct a firm to act on a No Win No Fee basis without agreeing to having a considerable amount of their damages kept for legal fees if they won. Further, the value applied for injuries were lowered considerably, meaning that where a previous claim would have been valued at £2k and the majority of legal fees were recovered (so a claimant would pay no more than 25% of any damages towards costs) would now be valued at £400-£500.

As a result, we as a company will not handle any soft tissue rtc claims as it is not viable for us and it is not fair on claimants.

The insurance industry said that they would reduce insurance prices considerably as a result of these changes, but have they? (we all know the answer)… So with their massively reduced costs on soft tissue rtc claims, insurers are now profiting massively from insurance premiums.

Thank you very much for taking time to reply. My main issue is that the solicitor doctor recommended my to have 6 sessions at a chiropractor and the solicitors said I had to pay for it and send them the receipts. I had 6 sessions costing £80 and the solicitors now say they are taking 30% of the money they told me to pay for a chiropractor. Surely they cannot take 30% of money they asked me to pay out for treatment so they didn’t have to arrange it themselves?

I would attempt to speak with someone senior within the firm in question to discuss this point. Whilst Solicitors may take a deduction from the special damages element of a claim, many will seek to avoid doing so wherever possible and it could well be that they agree to waive any deduction from the medical costs part of your settlement.

Involved in RTA 2014, other parted admitted liability. I sustained injury to different parts of my body neck, arm, back and a few days later my ankle started playing up and a couple months later it was diagnosed as having sustained damage to two places (ankle and upper part to my foot). I am no longer able to wear high heels. Damage contributes to arthritis to other side, right hip issues causes me to be unbalanced if I attempt to walk quickly or carry items over 3kg, making me fall. I am on ESA & PIP because of issues with arthritis at time of RTA, My Insurers put in a claim for £25K after 1st offer of £5k. Supposedly lodged in court but I have no proof. They are pushing for me to accept £25K. I believe it should be more as my GP has referred me to the Orthopaedic. Should I hold out for more and how much if so?

Have you had a consultation with a medical expert in respect of them providing a detailed prognosis of injury report to your Solicitor for the purposes of your claim? If so, the contents of the report along with relevant medical records should then be sent to Counsel for appraisal and they will give your side an opinion on appropriate settlement values.

My Insurance company sent me to 2 separate Consultants who have underplayed the extent of the injuries that I continue to suffer from, with both saying that recovery should happen within 6 months and that I would be ok. One of the Consultants basically that I was feigning the pain. I got my GP to send me for an MRI which showed that I have x 2 Lesions on my foot. The Insurers are saying that because I had not informed them of about my foot at the outset, the 3rd party Insurers are likely to pay out less than the £25k (which they say I should accept). I have given away loads of shoes and have a wardrobe full of lovely shoes – virtually new – that I will not be able to wear because of the damage to my foot.

This is a frustrating situation, but without the appropriate medical evidence in place it is hard for your side to fully fight your case. Have you asked the Solicitors to return to the Consultants you have seen to ask them to reconsider their reports and provide a more appropriate prognosis?

Hi I was a passenger in a car the other party accepted liability, straight forward case, yet it’s been over 2 half years my solicitors have informed me that they are charging on top of 25% vat on top also vat on ATE policy, basically on everything there adding vat – can they do this?

If you are not happy with your Solicitor and their conduct during the handling of your claim, it is important that you let them know in writing. You may find that this resolves the problems, but if not, make a formal complaint and you can then escalate that to the legal ombudsman should you need to do so.

My son has a claim which started in 2012 and so receives all compensation. However I ame xtremely unhappy with my current solicitor and have been looking for a new one. If I change now I can be charged upto 15% should I stay where I am or move. How will this affect how much my son receives in total

A new Solicitor should be able to run the claim on the previous system (which would see no deduction from settlement). However, switching Solicitors is far from straightforward – more-so for a new Solicitor rather than the client. This is because of the lien cost requirement issue.

I am starting a no win no fee claim I am concerned and confused if I win the claim and the amount of compensation does not cover the cost of solicitors do I have to pay the difference? Many thanks

Make sure that you are careful in your choice of which firm you will instruct to act for you. However, any decent specialist Solicitor will ensure that you sign a No Win No Fee instruction (Conditional Fee Agreement) that guarantees that you’ll never pay any costs if you are not successful and that you would contribute NO MORE than 25% of any awarded compensation towards costs if you do win.

Our specialist Solicitors operate on a No Win No Fee basis that will not require you to sign up for costly insurance that you would have to pay for if you succeed with your claim and will deduct on the minimum from any settlement should you succeed, capped at 25% of the total award – inclusive of VAT. As an example, if a claimant were to achieve settlement of £10,000 the minimum that they would receive would be £7,500. If you would like to use our excellent No Win No Fee service, please call us on 01225430285.

Does the claimant get 75% of the final award even if it’s not a no win no fee case?

If a claimant has instructed a Solicitor on a private client basis (in that they are agreeing to pay their Solicitors costs regardless of the outcome), they should retain all compensation.

Myself my Mother and Father were involved in a hard rear end smash while waiting at a junction. The lady who crashed into us admitted liability straight away. Her insurance company have confirmed this. We have two lots of dash cam footage. We have all suffered back injuries. The insurance company have sent out Solicitors papers to sign which I think is a no win no fee which states a maximum of 40% will be taken out of the claim money and I think 20%VAT. So it seems not worth bothering with. Do you think I should carry on with this claim?. Many thanks

The potential deduction figure you have been quoted is ridiculous and you should not instruct any firm who would take over half of your settlement. You should sign up with a firm that deducts no more than 25% of any awarded damages.

Hello

MY personal injury claim was settled in September 2021 for £10,000 (net £6900 once the success fee and ATE premium was deducted by the solicitor).

A few weeks later I received a sum of only £2900, and was informed that the solicitor was holding the remaining £4000 having interim billed me on account of the basic costs and disbursements of the claim. The solicitors have requested the other party to make payment in respect of the claim to cover those disbursements and costs , and have indicated that, only when the other party makes such payment, they will be in a position to forward the remaining compensation of £4,000.00 due to me.

I have two questions:
1. I have not had any sight over the actual incurred costs of the claim – how do I know whether this amount is accurate?
2. Additionally, are the solicitors permitted under conduct rules and accounting rules to withhold part of my compensation award as recourse for the unpaid costs from the other party?

You are entitled to see a full breakdown of the costs in your claim and should request the same from your Solicitor. The Solicitors are entitled to hold funds in lieu of receipt of their costs from the defendant if the terms of the Conditional Fee Agreement you signed with them allows them to do so.

Hi my personal injury claim was settled in April 2017. I paid 25% to solicitors but I did not know, nor was I asked, whether I had LEI. If I can prove I had LEI is there anyway to claim back the 25%?

Many thanks Cherry

The 25% deduction is not linked to LEI cover, so whether or not you had LEI, that is unlikely to be relevant to the Solicitors deduction of their fee. However, if you were never asked about existing LEI cover and your Solicitor ‘sold’ you an ATE policy that you had to pay for when your claim settled – whether part of the 25% or (as is most likely) an additional deduction and you can demonstrate that you had existing LEI cover, the premium you paid for the ATE cover should be refunded.

Can my lawyer take 25% of my award if that is way more than his costs actually are?

The amount that your Solicitor can deduct should not exceed the total of their own costs.

why is the motor insurance co. who I have paid for legal cover as part of my policy, not footing the bill for the conditional fee?

Whether or not your existing legal expenses insurance would cover the potential deduction of up to 25% of any settlement for a Conditional Fee Agreement based personal injury claim, will depend on the type of cover you have.

i applied for a cfa that states 25% cap but then goes on to say if the compensation payout does not cover the cost of all costs incurred then any shortfall would be payable. A payout was made but numerous purchases made by the firm costs and disbursements was greater than than the compensation. we got no payout and a bill for £5000 is this legal even though we signed without realising the extra clause small print, this clause gave them an open cheque at £220 plus vat per hour, surely you cant win but effectively lose with £5000 costs on top, how do i avoid being taken to court to pay up, how can i get out of having to pay.

The scenario you describe does not sound correct and further clarification should be sought. It may well be a good idea to refer this matter to the Solicitors Regulatory Authority in order that this matter can be investigated.

Hi,

I was involved in an accident which took place on the motorway where the other vehicle hit me from the back. The other party has accepted liability and my solicitors have said they made a global offer to settle the claim however they still want me to pay the full physio costs. Is this correct?

A global offer will see a claimant receive a sum of compensation to cover their settlement figure, legal costs and other fees (including rehab fees), so it would be correct that from whatever sum received (if you have agreed to it), you would pay the relevant fees from that.

Can you tell me why I am being asked to pay for the cost of physio, I received after a RTC, surely the guilty party’s insurance should have to pay these costs not me?

There are two ways in which rehabilitation or physiotherapy costs are paid by defendants. The first (and more straightforward) method is for the defendant to agree to a certain amount of treatments and they then pay the costs directly to the provider. The second method is that a claimant will obtain treatment their compensation settlement will include an element that they then have to pay for the therapies that they have received. It would appear that this is the way it has been handled in your case.