Monday, 25 May 2015

The bottom line

Today I’m inspired by a sunny bank holiday morning in Somerset and a typically heart-warming post by my friend Steve Cornforth, senior partner of EAD Solicitors in Liverpool, at the end of last week. A Win for Justice reports the settlement of a claim at a value which was twenty times that of the defendants’ original offer.

I know that it’s by no means the first such scenario for Steve’s firm and I hope there will be many more happy endings. Injured folk need to be properly compensated. That’s not just my view, or the opinion of a small group of self-interested lawyers. In this country as in many others, it’s society’s view. It’s the law.

Whilst this case is exceptional it’s not rare for injury claims to conclude with settlements or awards that are many times higher in value than the sum insurers were prepared to pay. One of my more memorable cases (see Foxes and chickens) involved an offer-award ratio of similar proportions. There are many others where the gap is not so alarming, but still remarkable.

At this point you may be thinking “Big deal” and wondering ‘what’s the problem?’ Insurers have a position to protect and responsibilities to their shareholders. That’s their business. Claims handlers and their lawyers can’t be a soft touch.

So they try to minimise outlay, perhaps keeping in perspective the expense of that process (yes, I’m smiling too). If they’re wrong then the claimant will ultimately satisfy the court that he or she is entitled to more and the defendant will be ordered to pay the costs as well. Happy days.

Well, as many readers know, it doesn’t quite work like that. Even in the most successful cases there are costs reasonably incurred by the lawyer and chargeable to the client that are not recoverable from the losing party. There is the risk all along the way of something going wrong, regardless of the merits of the claim or the skills of the lawyers.

Irrecoverable costs and litigation risk are meat and drink to insurers. They go with the territory and are largely neutralized by economies of scale.

But the clue to the real issue here is in that reference to lawyers. At the end of the day it’s expert legal representation that makes the difference. Only trained professionals can tell or reassure a claimant that what they’re being offered isn’t enough – and then help them do something about it.

So, fair fight then? No, it isn’t – for these reasons.

Injured victims left without representation will be ‘mugged’, as the Law Society campaigned to warn them two years ago (Never walk alone). The insurance industry knows that is the key to reducing the expense of compensation. There are three main elements of the strategy.

First, get hold of the victim from the outset and try to deal direct. Tell them they don’t need a lawyer, tell them they’ll get no more money by using a lawyer, tell them it will only delay matters and cost them money in the long run. It’s called ‘claims capture’. See Livin’ Aviva loca for an example of it (almost) happening to one of my own personal injury lawyers!

Secondly, if they can’t get the innocent claimant on their own, then insurers will try to steer the victim to a firm of lawyers who, frankly, aren’t up to the job because their business model doesn’t enable them to deploy staff who know what they’re doing or to exercise proper supervision. (See Fun boy three and many others).

Thirdly, insurers run a wider campaign to destroy the independent firms trying to deliver best service to deserving claimants. From the relentless black propaganda about whiplash injuries (Hey diddle diddle) to the slashing of recoverable costs, the war is aimed at removing from the battlefield the champions of the innocent.

Many people I talk to about the mythical ‘compensation culture’ display some degree of reticence about pursuing a claim, whether it’s a current issue for them or a hypothetical situation. Insurers have succeeded (funded by the premia that potential claimants pay) in stigmatizing the concept of compensation for loss and injury caused by negligent third parties.

It’s like paying a club membership fee but being told constantly by the management of the club that it’s not the place to go. They still want you to pay the fee, of course, and they’ll keep promising to reduce it…

And for those mutinous, stubborn victims who want a lawyer with integrity and ability to help them on this perilous journey, the choice is narrowing – again because of insurers’ long-term campaign to eliminate their guides. Good claimant lawyers are leaving the market because it’s no longer financially viable. They won’t be replaced.

The insurance industry have made great strides, with enormous help from a supportive government over the last few years, in progressively reducing the amount of costs that successful claimants are entitled to recover from the insurers of the person responsible. Portals and fixed costs – with the rules ever changing – are all about putting up barriers to justice.

The outgoing Lord Chancellor gave them a considerable bonus just before he left office with an eye-watering rise in court fees of up to 660% at some levels. Mr Grayling and his colleagues said it would have no impact on access to justice – on the “optional activity” of litigation as Lord Faulks described it. Incredible.

Back here on this planet, I can immediately think of one case where my decision to help a potentially deserving claimant will be hugely influenced by the fact that the court issue fee is likely to be £10,000 rather than around £1500 as it would have been less than three months ago.

Insurers complain constantly of “disproportionate costs” with the happy result that a supine government removed recoverability of success fees (the lawyers’ reward for the risk of no payment at all) and continued through costs budgeting to limit the amounts that a winning party can recover from the wrongdoer.

The important thing to remember about costs budgeting, and generally costs-shifting between parties, is that it doesn’t limit the amount either side may spend on the litigation. It’s their choice, in theory, to throw as much as they like at any particular case regardless of where the bill lands at the end of the day.

Theory is one thing. The reality is that whilst injured victims and their lawyers depend case by case on success to fund access to justice, insurers always have a war chest to fight a claim regardless of whether it seems proportionate. If funds run low, they’ll increase the cost of insurance.

And then they’ll complain loudly that it’s the fault of ‘compensation culture’ and ‘fat cat lawyers’.

Here is the ugly disparity between the two camps. Deserving claimants, or more likely their lawyers, have to face a significant risk that any individual case may fail. The ‘easy’ ones no longer generate anything beyond the cost (if you’re lucky) of running them. That risk has been hugely augmented over the last two or three years.

Defendants, or rather their insurers, can always afford to fight and will justify what they do by reference to policy and points of principle. Together they maintain a campaign which is aimed not at the merits of an individual case but at the weakening and destruction of those with the capability to run them. They do not care in the slightest that an innocent victim may not receive the support they need and to which the law says they are entitled.

Cases like the one just reported demonstrate over and again that whilst the law of this country says you may and should have a remedy, the barriers rise and multiply. Innocent victims need brave and talented lawyers but the numbers are in decline. So is the law. (Road to ruin)

A client who has recently signed a CFA with us came from the ABS to which he had been steered by his own insurers having formed a view about their ability and, more important, their true loyalties. He wrote of “a system obsessed with bottom-line profit at the expense of absolutely everybody”.

Couldn’t put it better myself.