Peanuts..

Last month I wrote about the case of the Manchester motorbiker whose Bristol solicitors, appointed by legal expenses insurers, settled his case for £500,000 – when as subsequently demonstrated it was worth £1 million+ - http://legalchap.blogspot.co.uk/2012/08/panel-beater.html

This month the Law Society Gazette reports on the rise in professional negligence claims against personal injury law firms citing “reliance on under-qualified staff, a lack of face-to-face contact with clients and failure to understand medical reports” as “all factors in the trend”.

Surrey firm BakerLaw reported a recovery of £700,000 for a client whose original solicitors had achieved an award of £16,000.

An associate at Withy King who said one claim was worth nine times the £10,000 settlement agreed by other solicitors added that most claims were by victims represented by panel solicitors located in a different part of the country.

Another professional negligence lawyer spoke of “the proliferation of claims lawyers where there are just one or two partners and a bank of paralegals” generating the problems.

None of this is surprising. The flat, wide pyramid structure represents a risk in many types of business. In an environment where an element of judgment informed by experience will always be required, it signals failure.

Why do it?

Many of these firms are trapped in the business model created by legal expenses insurers whose policies sell for peanuts and only buy monkeys.

It’s not a universal problem. There are decent panel lawyers and there are BTE insurers who cut a fair deal. See for example http://legalchap.blogspot.co.uk/2011/08/bte-angels.html

But in my experience the good guys are the exception and the evidence is beginning to show that so many who have taken the insurers’ shilling and sold their souls are delivering a shoddy service.

From the victims’ point of view, that is.

What about insurers? Well it looks fine for them. They are driving the price of legal services down to increase their margins and passing the risk to professional indemnity insurers – by and large a different market.

Another commentator has made the valid observation that some if not all of these wicked under-settlements are driven by liability insurers who care nothing about injured people, their representatives or their indemnity insurers.

One hopes that (indemnity) market will quickly decline to continue underwriting the risks generated by law firms who facilitate the greedy aspirations of insurers with no care for the standard of service delivered to injured victims.

Until then this problem will only grow worse.

Brass tax

We posted a news story this morning reporting on a decision of the First Tier Tax Tribunal (no, wake up – this is actually quite interesting!) allowing an appeal against penalty for late payment of PAYE and NI by a limited company, Browns CTP.

See http://www.mrw-law.co.uk/news/2012/09/20/taxpayers-entitled-to-rely-on-first-class-post/ for the summary but the nub of it was that the company had a “reasonable excuse” as provided for by the Income Tax (PAYE) Regs 2003.

That reasonable excuse was identified in this case as the reasonable expectation that the payment would arrive on time. In turn, that relied on the belief that a cheque sent by first class post would arrive the next day.

“Taking all these matters into account we consider that a reasonable employer, having due regard to his responsibilities in relation to PAYE, is generally entitled to rely on next day delivery in the ordinary course of first class post”, the tribunal judge concluded.

Well, if you didn’t nod off four paragraphs ago, you may be forgiven for now rolling about on the floor in response to the idea that Royal Mail can be relied on to deliver next day, whatever grade of service is chosen and paid for. See http://www.legalchap.blogspot.co.uk/2011/10/bottom-of-class.html for one of many sparkling past performances.

More important though is the question of why people are spending time and money, some of it the taxpayer’s, in some dark room in Manchester having this antediluvian debate.

Cheques, “first class” post? Why is anyone – certainly a business owner and employer - still messing around with these antiquated forms of payment when it’s cheaper, faster, greener and more secure to pay by BACS or similar online means?

The answer is, largely if not entirely, that our antiquated tax collection services perpetuate these out-of-date practices. They even try to persuade those who already live in the modern era to regress - http://www.legalchap.blogspot.co.uk/2012/05/junk-mail.html.

A well-informed source told me last year that the money collected in income tax does no more than to fund the entire revenue collection system, with the net effect that the only profit is on VAT, Corporation Tax etc. I don’t know if that’s true but it wouldn’t surprise me.

Let's get down to basics. Somebody needs to give the whole operation a colossal kick up the backside to the point where even the people sitting there licking envelopes and juggling cheques understand the importance of not filling a sack full of holes.

Then stop asking me and the rest of the population to scrimp and save so that those stuck in these mindless routines need not get off their comfort level and move with the times.

Business as usual

As motor insurers continue their efforts to put yet more hurdles in the way of innocent victims, we eagerly await more news from the Office of Fair Trading (“OFT”) which has been threatening to spoil the party.

Liability insurers constantly complain about the cost of dealing with claims by the victims of motor and other accidents.  As with clinical negligence claims[1] it’s all the fault of the claimants and their lawyers – nothing to do with their own fat cat salaries and meaty shareholder returns.

Strange in a way that the OFT should have come to the view at the start of this summer that “insurers compete in a dysfunctional way that may push up premiums (sic) for drivers by £225 million a year”

The OFT’s market study provisionally found that an average of £560 is added to the cost of replacement vehicles by:-

• Insurers of the not-at-fault drivers, brokers and repairers referring those drivers to credit hire organisations that charge inflated hire rates, in exchange for a referral fee of between £250 and £400 per hire.
• Drivers being provided with replacement vehicles for longer periods than necessary, whilst they wait for repairs to be carried out by the garages nominated by insurers (also paying referral fees – see below).

The OFT’s report also provisionally found that the cost of repairs was inflated by an average of £155 each time by:-

• Certain insurers receiving referral fees from repairers and associated trades; 

• Certain insurers having agreements with approved repairers to charge higher labour rates when repairing a vehicle belonging to their insured.

So, insurance company A takes the backhanders from the car hire companies, garages and anybody else who’s willing to pay them and promotes the levy of hire charges and delays in repairs to help those that pay the referral fees get their money back and more.

That additional expense is passed on to insurer B (the policy holder will get nobbled for any shortfall) whose costs rise.

 

But it all evens out because in the next scenario the insurers will swap roles.

Ultimately the winners are those who can manufacture more in referral fees than they pay to fund all the artificial charges created by their cronies.

But they will all win because they can moan about these costs, blame them on lawyers (who, note, don’t figure in these scenarios at all) and take some more money off the punters.[2]

Repugnant?  Of course it is.

As the president of the Association of Personal Injury Lawyers, Karl Tonks, said “insurers have finally been caught with their hands in the cookie jar. What the OFT calls ‘dysfunctional’ and ‘inefficient’ actually reveals a host of grubby practices to line insurers own pockets”.

Business as usual then.

---

[1] See Repeat prescription

[2] See e.g. Win, win, win - and win again and The real culprits