By Kevin Donoghue, Principal Solicitor, Donoghue Solicitors

Yesterday the government confirmed the amount of money that accident victims will receive to pay their solicitors’ fees following personal injuries in a car, at work or in a public place, if proposals slated for April 2013 are introduced.

For Road Traffic Accidents dealt with using an online ‘portal’ introduced in 2010, they will only recover £500 if their claim is valued at up to £10,000. Previously, the fees were £1200 (+ 12.5% if the solicitor was acting under a ‘no win no fee’ agreement). If more than £10,000, the fees will be increased to £800. Currently these fees are not fixed, being agreed by negotiation between the parties or set by a judge at court.

For public liability claims (which include tripping and slipping accidents) and employer’s liability claims (accidents at work) the fees paid to the accident victims will be £900 for cases worth up to £10,000. If the case is worth more than £10,000, the injured person will receive £1600. Previously, as with road traffic claims worth more than £10,000, fees were not fixed.

For cases that fall out of the ‘portal’ system a new regime is being proposed, meaning that for the first time, contested cases will be dealt with using a fixed fee system from start to finish, regardless of complexity or time spent pursuing the case.

Insurance company manipulation

The downward pressure on fees has been led by insurance companies, principally those in the competitive motor insurance market. They have convinced the government to reduce legal fees paid to accident victims (which are then passed on to their solicitors), to ban referral fees and to extend the types of cases dealt with using the online ‘portal’. They argued that by doing this the government could help them reduce the cost of insurance premiums, especially in road traffic accident ‘whiplash’ claims, often using emotive, inaccurate and derogatory language. For example, Director General of the Association of British Insurers, Otto Thoresen  referred to solicitors as ‘ambulance chasers’ who ‘manipulate the system’. As a personal injury solicitor, I take great offence to such comments, which are designed to deflect attention from his members’ own sharp practices.

As a recent report by the Association of Personal Injury Lawyers (APIL) pointed out, the ‘compensation culture’ cited to justify the reforms is a myth.

Not only are the number of whiplash claims falling year on year, almost half the people who sustain the injuries do not claim for them. 

Most surprising of all, almost 30% of claims are encouraged by the insurers themselves, who usually sell the claims they obtain on to their own panel solicitors in return for a referral fee, some for as much as £10,000. As such, insurers are the second highest cause of ‘whiplash’ claims being made, after the injured victim deciding to pursue the claims themselves.

Advice deserts

Insurers convinced the government that there was too much money being paid to ‘ambulance chasing’ solicitors to represent accident victims. As the fees in lower value road traffic accidents alone will be reduced by 60% or more, it is likely that this will result in a great many ‘high street’ solicitors turning away this type of work from next April.

‘Advice deserts’, where people are unable to find local solicitors to represent them, could become commonplace.

This is because solicitors are heavily regulated by the Solicitors Regulation Authority and pay large amounts for Professional Indemnity Insurance. As a result, the time and money spent on compliance and overheads to maintain law firms mean that lower fee work may not be taken as it may not be profitably done to the high standards required to satisfy regulators and insurers, let alone clients who have come to expect excellent service from independent solicitors on a ‘no win no fee’ basis.

No more ‘no win no fee’

Under the present system, most of the time the legal fees paid to the accident victim are passed on to their solicitor, in return for which the solicitor agrees not to deduct any money from the compensation paid. As such, ‘no win no fee’ becomes simply ‘no fee’.

It is anticipated that accident victims will be reluctant to pay any money out of their damages to meet the gap between the cost to the solicitor to pursue their claim and the amount paid by the responsible insurers.

Given their resources, it is likely that the insurers themselves, under the guise of Alternative Business Structures, will keep the claims work ‘in-house’ at out –of-town call centres, so ensuring that they still get to profit from the fees paid. In the event they suffer a shortfall, they can just increase insurance premiums and more aggressively fight claims. Solicitors have no such option.

The personal service from a local lawyer may well be lost to all but those willing to pay legal fees out of their compensation, leaving them worse off than before the accident.  As the aim of tort law, by which personal injury claims are governed, is to put the innocent victim in the pre-accident position so that they are no worse off than if the accident had never happened, the government’s policies will result in a fundamental change in the law which favours insurers and big business over innocent accident victims.

What lawyers like Donoghue Solicitors are doing

As an accredited firm with the Association of Personal Injury Lawyers, we are fully behind APIL’s campaign to draw attention to the potentially devastating consequences of the changes to innocent accident victims.

APIL have written to the government demanding a review of the way in which they extended the limits of the road traffic portal, the fee reduction, and the introduction of new portals for non-RTA claims. In the event the government does not respond to APIL’s letter before claim by 23 November, judicial review proceedings will be taken. As there is also to be a consultation on the fee structure in which APIL are involved, there is still time for the government to reconsider.

Trust

The government has overlooked an important group when reforming legal services and costs: accident victims. The APIL report noted that, of the 4,000 people surveyed, almost twice as many people would trust a solicitor to look after their interests if they submitted a compensation claim than an insurer. And yet, if these costs changes are introduced, the public may well be at the mercy of the insurers, with no local solicitors to protect them.

The government has swallowed the insurers’ line about cutting excesses within the personal injury market and intends to drastically reduce the amount paid to accident victims by way of costs in the process. In doing so, they have satisfied insurers and their shareholders.

However, this will be done at great personal cost to their constituents, who include not only innocent accident victims, but the thousands who work in and for law firms who now find themselves in an uncertain professional position. It remains to be seen how much of an impact these proposals will have come election time. The Conservatives, who received £4.9 million from insurance company firms between 2005-2011, may come to regret taking the insurers’ easy money in return for letting them set the agenda.

Kevin Donoghue is Principal Solicitor at Donoghue Solicitors, a law firm which specialises in accident claims.