The Association of British Insurers (ABI) has welcomed plans to reform the ‘no win, no fee’ system having cited high legal costs in settling personal injury claims as one of the main reasons for the general rise in motor insurance premiums. The planned reforms by the Ministry of Justice aim to balance the costs more fairly between the claimant and defendant, but there are wider implications for all parties if the legislation goes ahead.
Boswell Director, Ashley Minors, said: “At present, the ‘no win, no fee’ process allows a claimant to embark on a lawsuit without the fear of incurring any upfront costs and allowing solicitors to make their money from what is effectively a ‘success fee’ charged to the defendant after a case is won. The reforms would remove the ability of claimants to recover their costly insurance premiums and their own lawyers' fees from losing defendants; instead, the costs will have to be paid out of any final award for damages. The planned reforms should put the brake on runaway legal costs and mean a better deal for genuine claimants and insurance customers, lowering legal costs and helping to cap motor insurance premiums. The overall aim is to make claimant lawyers more cautious to take on cases, but also to encourage claimants to take an interest in what they are paying their lawyer.”
The ‘no win, no fee’ system was introduced in 2000 when legal aid was abolished for personal injury claims to enable anyone, regardless of their means, access to justice. However, 12 years later the number of people seeking ‘justice’ creeps up and up with Ministers believing the current system promotes a ‘compensation culture’ with claimants embarking on cases because they have nothing to lose and everything to gain.
Plans to overhaul the current ‘no win, no fee’ arrangements will effectively see a u-turn in the legislation reverting back to a process adopted in the 1990s in an attempt to put a stop to exploitation of the current system and strike a better deal for genuine claimants and insurance customers. What this means for insurers is lower premiums as legal costs from unnecessary claims are currently one of the main reasons for the general rise in motor insurance claims.
Reservations over whether the changes will prevent people of “ordinary means” from obtaining justice or defending themselves in court were raised by the parents of the murdered schoolgirl, Milly Dowler, who sued the News of the World in 2011 for phone hacking. Without access to a conditional fee agreement (CFA), which protected them from this risk of being liable for thousands of pounds in costs, the couple would not have been able even to embark on the legal journey. Others have voiced the opinion that with only around 25% of accident victims ever making a claim they’re attacking a problem that doesn’t exist.
Although the changes were due to come into effect in October 2012, it will be sometime yet before we know the outcome of these controversial reforms as it was recently announced the Ministry of Justice will order a six month delay to further consider the implications of this legislation – watch this space!