PI Brief Update

PI in the New Era - Deborah Evans, APIL Chief Executive

10/05/13. Certainly, personal injury lawyers are no strangers to commercial thinking. What with managing ‘no win no fee’ business models, competitive advertising, portals and fixed fees, and risk assessments, the average PI lawyer has had to evolve at speed over recent years. Over the last month we have witnessed the start of the most fundamental shift in personal injury law and practice this century.

The Jackson reforms had been debated and derided by claimant lawyers for years, and yet on the 5 April they arrived in all their glory. Lord Justice Jackson’s initial proposals can be summarised as follows:

• Claimants should bear some of the cost of litigating in order to lower the cost burden on the defendant

• A new model of qualified one way cost shifting (QOCS) to be developed to remove the need for ATE insurance

• Bad part 36 behaviour to be discouraged

• General damages to increase by 10 per cent

• Referral fees should be banned

• Fixed costs should be introduced in the fast track

• Contingency fees should be developed as a model

• Cost budgeting to be introduced

So, how do the reforms translate into practice? Have our fears been realised?

Claimant representatives are now coming to terms with talking to clients about fees. Whilst lawyers in other disciplines do this as a matter of course, many PI lawyers have never had to do this. It is a learning curve. Many lawyers believe strongly that it is ethically wrong to take money from damages – no-one ever chooses to be injured so why should they pay for the privilege? It has been an unwelcome lesson. On the plus side, claimants actually take the news about deductions from damages relatively well as long as it is clearly explained, as Scottish lawyers will vouch. However, the message gets more complex as the case progresses. Lawyers will need to take care to translate offers from compensators as to what it means for the client – for example, if an insurer makes an offer of compensation of £20,000, this may mean that the client walks away with £15,000. Clarity is key, and there are undoubtedly issues which have yet to surface as claims move through the various stages towards trial. It is early days yet.

Law firms are making decisions about whether to charge a success fee, and if so, how much to charge. Jackson had hoped for competition on success fees, but most firms have concluded that they have to charge the full 25 per cent if they are to survive. Our fears were always that more risky cases – those deserving but complex – may not get off the ground in an environment with capped success fees. In many cases, the cap on the success fee translates to a very real drop in income. Business models are being flexed accordingly, and risk assessment is being taken very seriously. Most firms will continue to take on more complex work but need to be careful to balance their caseload. In an area such as clinical negligence, where the success rate is lower simply because the prospects of success are difficult to determine at the start of a case, risk assessment becomes a survival tool. The harsh reality is that some injured people whose cases may have succeeded previously will struggle to find a lawyer to represent them. These are real people with real injuries that no lawyer wants to turn away. It will include those suffering serious malpractice at a hospital where perhaps there is an issue over causation, and those acquiring an industrial disease through doing a hard day’s work. It is likely to impact a proportion of the most serious, high value cases which will be vigorously defended. This is a small but real access to justice issue, and APIL plans to research the scale of the detriment over the next 12 months.

As firms remodel their businesses, a minority have already made the decision to pull out of PI, and there have been a few well publicised redundancies. Many firms are raising their game, for example looking to attract more multi-track work, which could lead to the serious injury market becoming more crowded. It is important that a client is able to spot a practitioner with the level of expertise required. Accreditation is therefore becoming more relevant than ever.

Costs have certainly nose-dived for defendants and their insurers – they save on the success fee and the ATE premium in higher value work, and additionally the fixed fee in lower value work. The Government hopes the combination of reforms will deliver savings on insurance premiums, but as yet, there are no announcements with regards prices falling for consumers. Cost savings have been delivered, but did it achieve this objective? Probably not.

As yet it is too early to pass informed comment on qualified one-way cost shifting (QOCS). Cases started after 1 April have yet to come to trial. Jackson saw the advent of QOCS as negating the need for ATE insurance, but nothing could be further from the truth. The interplay between QOCS and part 36 has created a real financial risk against which claimants will want to insure. Who would want to see their damages eroded by a costs order? There is little part 36 activity under the new regime at present as it is simply too early. However, the current structure could drive the wrong behaviours. Certainly, the injured person benefits from a 10 per cent increase in damages should the defendant make a bad call on a part 36 offer, but the alternative sanction should the claimant make the bad call seems extreme – he stands to potentially lose all his damages. He can win his case, but walk away with nothing. We have yet to see the reality of this inequality hitting home.

ATE insurance still continues to be an essential tool for disbursement funding. The ATE market has consolidated with fewer, but bigger, providers. The price of premiums has also dropped for some work – typically low value RTA cases, which is welcome. However, as yet there is no clear picture on what the uptake will be. Some firms intend to proceed without ATE, while others intend to buy it in every case. Many firms will pick and choose. The ATE providers have been innovative and responsive to firms needs, and will continue to respond over the next 12 to 18 months.

An increase in general damages is long overdue, and is welcomed by claimant lawyers. But again, it is still very early days as unless the client is covered by BTE insurance, it only applies to cases where the funding model is in place after the beginning of April. Whilst the more serious cases will take time to settle, low value cases are already settling under the new regime, and claimant lawyers are strong willed in fighting for the additional 10 per cent on behalf of their clients.

For firms reliant on a referral fee model, the ban was a cause of great concern. This impacted insurers and lawyers alike in the low value market. However, there is a deafening silence post April. Have referral fees simply gone away as planned? The reality is that the market is alive and well, but has flexed to become compliant with the definition in the Act. Referrers have become introducers – the SRA permits ‘legitimate introductions’ – and it is now the client who gets in touch with the law firm as the result of a recommendation, rather than the CMC contacting the firm direct. But April was an unusual month - the reduction of the fixed fee in the RTA portal did not kick in until May, and as such there was still enough money in the system to support marketing activity. A different picture may emerge a few months down the line. In the lead up to April, firms worked on getting their systems compliant. During May, they need to establish whether their systems are still affordable under the new cost regime. Again, there has been some consolidation – particularly through the ABS model. ABSs have formed between law firms and CMCs, and law firms and insurers – thus negating the need for any referrals as it simply becomes in house. ABSs involving insurers need to be absolutely clear as to how they deal with any client conflict – particularly if both the claimant and the defendant are insured by the same company. Outside of ABSs, referrers / introducers are limiting the number of firms they work with. This is having a particular impact on smaller firms who then struggle to acquire work, and I hear talk of some firms being put up for sale as a result.

So what of contingency fees? The damages based agreement (DBA) as drafted is next to useless. Contingency fees are unlikely to work well in an environment of cost recovery, and as a result there has been no rush by lawyers to embrace them. I have yet to speak to a lawyer who has used one.

Cost budgeting has already begun with gusto but while budgets are being set, cases have yet to reach fruition. It is therefore too early to tell if lawyers and judges are setting workable budgets, and whether this causes problems for claimants and their cases.

But the Jackson reforms are not here in their entirety yet. Fixed costs in the fast track will be implemented at the end of July, at a markedly lower level than that proposed as workable by Jackson. This is a cause of great concern. Jackson proposed figures that at the time he thought reasonable, bearing in mind the referral fee ban. And yet they have been further slashed. There are fears that the reduced fee fails to reflect the amount of work required in these cases. Certainly the fact that defendants’ costs are not fixed creates an inequality of arms. The Enterprise and Regulatory Reform Bill brings in further complexities for those injured at work who will now have to prove their cases in negligence. We have fees far less than Jackson proposed, yet with far more to do.

So, one month in and the signs are mixed. No-one ever chooses to be injured, but lawyers are having to make hard choices over whether they can represent them or not. There will undoubtedly be test cases and precedents developing. The market will continue to shift and adapt. Only time will be able to provide us with the true picture.

Deborah Evans
APIL Chief Executive

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