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Civil justice reforms: Restoring balance

At a glance

  • The Jackson Review has overhauled personal injury reforms. Discover how this can affect you and your clients.

Like a runaway train, litigation costs for many commonplace personal injury claims have continued to gather pace in an uncontrolled manner and impacted on premiums. Current practices and the so-called compensation culture have created a dysfunctional market.

Reform is happening because the brakes need to go on, and much of the thinking behind the changes has stemmed from the Jackson Review.

Lord Justice Jackson was tasked with making civil litigation cheaper and more efficient. His final report came out in December 2009, which proposed a number of reforms, aimed at cutting costs but ensuring fairness for both defendant and claimant. The government will implement these in April 2013, through Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

What will change?

These are complex changes, which will impact on brokers and their clients. The most notable are:

  • Success fees and after-the-event insurance premiums will no longer be recoverable from the losing party;
  • The introduction of qualified one-way cost shifting – this means a claimant is not at risk of paying the defendant’s costs if they lose;
  • Contingency fees (also known as damages-based agreements) will be permitted for all claims;
  • Lawyers working under contingency fees from April 2013 will not be able to take more than 50% of the damages in commercial cases, the government has revealed;
  • There will be a 10% increase on general damage awards in personal injury claims;
  • There will be a 25% cap on success fees in personal injury cases;
  • Part 36: A defendant who does not better a claimant’s Part 36 offer to settle will face paying a penalty in the form of an additional percentage of damages;
  • The existing MoJ road traffic portal process will be extended to EL and PL claims and the value of claims handled through this mechanism will be increased from £10,000 to £25,000;
  • The government announced that it will be reducing the fixed costs allowed for portal claims – details are still awaited;
  • The government is also consulting on measures to address the number and costs of whiplash claims.

It should be noted that claims for mesothelioma have, for the time being at least, been entirely exempted from these changes to the recoverability of additional liabilities.

A greater sense of proportion?

The foreword to Lord Justice Jackson’s review stated: “In some areas of civil litigation, costs are disproportionate and impede access to justice. I therefore propose a coherent package of interlocking reforms, designed to control costs and promote access to justice.”

The package now set to become law is radical in parts, and not least, the new regime of qualified one-way costs shifting, which applies to personal injury cases.

We cannot tell how this will work in practice. While it means if the claimant conducts their case properly, they will not have to pay towards the defendant’s costs if the claim fails, it could mean more ‘try-on’ claims are made. This is because there is no general adverse costs liability and (probably) no pre-claim scrutiny by an ATE insurer.

As for ATE insurance, it will now largely wither on the vine in personal injury claims, although premiums will remain recoverable for expert reports in clinical negligence cases. However, ATE insurers are now expected to switch to being primarily providers of cover for commercial legal cases.

Assessing the impact

These reforms are about restoring balance, but they are not going to mean massive savings for insurers or customers. It is important to remember that although costs are being removed from the system, there is an increase in general damages, which will offset these.

However, one important benefit is the fact that claimants will pay their lawyers’ success fees, which means they will take an interest in controlling the costs being incurred on their behalf.

Because more claims will be notified through an electronic portal, the timeframe for accepting claims and making a decision on liability will be reduced. So, brokers who provide claims handling services will need to ensure their systems are efficient in terms of providing documentation and assisting promptly with liability investigations.

Zurich welcomes these changes, and we have been involved from the start, including chairing the ABI’s Jackson working party. We will continue to update brokers and we also recommend that brokers keep up to date with this topic via the Ministry of Justice website.

Image © Getty

For more information, get in touch

Richard Walker | National Financial Lines Development Manager | 07875 887 780

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