After The Event Insurance blog

Good break? Very hectic bank holiday for the Morris family so I have come back to work for a rest.

There didn’t seem to be many people going to work this morning though. I read somewhere that over 25% of people would be taking these middle 3 days off in order to end up with an 11 day holiday. Now here at Box Legal, I am in obviously, and so is Jon Gouldsmith and Kirsten Arnold. Which means it must be my colleague Alan Whicker who is off. I wondered why I hadn’t seen him (with apologies to Tommy Cooper).

Enough of the flim flam, let’s talk about something you may not have heard of: ‘Hold Harmless’ ATE Insurance policies.

Strange name, strange concept. Basically, there are unscrupulous After the Event Insurers out there and some greedy (some would also say foolish) solicitors. The solicitors have agreed to take out After the Event Insurance from the insurer but have also agreed never to claim on the policies (they ‘hold’ the insurer ‘harmless’ to claims). How can that be I hear you say? Well, the whole point is that the policy is recoverable at the moment from the defendant. The solicitor agrees to buy the policy for a low sum, say £100 but can then recover £350 or more from the defendant. This gives them a tidy ‘profit’ of £250 per policy and the insurer makes £100. Everyone’s a winner? Well, no. What happens if someone loses? Well the solicitor has agreed to pay out all of the costs from the profit they have made on the policies. Which basically means they are acting as insurers themselves - which is illegal by the way and the SRA aren’t happy either.

Solicitors acting in this way are putting profit before their client’s best interests as they will always be having one eye on the risk of losing. The insurer is basically defrauding the defendant insurance industry as they are issuing a piece of paper and saying it is an insurance policy when in reality it isn’t.

We are aware of a number of insurers and firms who act in this way. The problem is, they are clever and there isn’t anything in writing. It is all done with nods and winks.

So how do you stop them? Well, there’s no need actually. When Jackson comes in, Hold Harmless policies will disappear. Why? Well, the client is going to be paying and will vote with his or her feet if a solicitor tries to sell them an inflated policy. The SRA is looking to come down very hard on firms attempting to make a profit out of ATE insurance at the expense of client’s damages. We believe some may try to continue the con but they will be a dying breed.

Bit like people who actually turn up for work I suppose.

Box Legal Limited: After the Event Insurance Providers
www.boxlegal.co.uk  | daniel@boxlegal.co.uk | 0870 766 9997

Hello there. I am back.

We had a lovely week in the French Alps. Fantastic weather but only snow quite high up so the children had to go in the cable car every day to ski school whilst the poor old parents sat outside drinking espressos at 3 (where’s my Euros symbol?) a pop. We shall go earlier next year.

I thought I would talk today about disbursements as I think these are not really seen as a risk for clients (everyone focuses on adverse costs) but they are very important.

We have carried out an analysis on claims paid since we set up our scheme some 7 years ago. It may surprise you to know that the average disbursement claim paid out is nearly £1,900! Don’t forget that is the average – if you look at the top 25%, it is over £5,000 per claim and the worst ever was for just over £16,000!

I think it was good old Lord Jackson who suggested that solicitors would be happy to shoulder these expenses and absorb them into the overheads of their business models. This was generous of him – particularly as he has effectively taken away the success fee (clients will shop around for the cheapest one). I don’t think many firms are going to be happy to pay £1,900 per failed case let alone £5,000 or even £16,000!

And it gets worse….

The number of claims are likely to reduce (less money for solicitors = lower ability to pay referrers = less referrer profit = less claims) and we all know what happens with supply and demand on services. If a company is supplying engineer’s assessments and is doing 5,000 of them a year, they can keep their prices low due to high volumes. If instead they are only doing 3,000 a year, they still have to cover their overheads and so, to keep profitable, their prices will have to rise. It’s the old ‘pile it high, sell it cheap’ Woolworths analogy in reverse (and look what happened to them).

So we think disbursements are going to rise – and that’s not all….

Our legal expert, Jon Gouldsmith, pointed out something interesting to me. A lot of our claims involve barristers who have acted on a CFA and so when they lose, they have waived their fee. Well, success fees for barristers won’t be recoverable from the defendant post-Jackson, just like the solicitor’s success fee. It will be a client expense and so we think clients won’t like them and nor will barristers. They will go back to standard fee paying arrangements which means their fees are going to be added to the disbursements which the solicitor has to, er write off (this means pay of course!) in the event of a loss. Our calculations show this will add about 15% to the disbursements liability.

So the bad news is, clients are going to have to be told that they face an average disbursements liability of £2,000 odd and a worse case scenario of, say £18,000 based on our figures. Some solicitors may want to ask for money on account for this.

OR, clients could buy a useful thing called After the Event insurance!

Box Legal Limited: After the Event Insurance Providers
www.boxlegal.co.uk  | daniel@boxlegal.co.uk | 0870 766 9997

Now that the dust has settled on Ken Clarke’s announcement, let’s do some crystal ball gazing to see what is going to happen to After the Event Insurance post Jackson implementation.

First, let’s look at the (likely) rules:

• After the Event Insurance won’t we recoverable from the defendant
• Adverse costs won’t generally be payable except:
  • Where the claimant has acted unreasonably (we shall ignore fraud as ATE Insurance wouldn’t cover this anyway)
  • Where the claimant is wealthy
  • Where the Defendant has made a Part 36 offer and the client fails to beat it.
• The client will get an uplift of 10% on their general damages to pay for their success fee and any ATE insurance policy.
• There may be a fixed sum payable if a case is lost to put off ‘silly’ claims – the amount being banded around here is £1,000.

So, why would anyone need an After the Event Insurance policy (I am being facetious)?

Well, here goes:

1. To cover the claimant’s own disbursements which can run into 5 figures
2. To cover the risk of the claimant being found to have been ‘unreasonable’ which will be decided at the end of the case by the Judge.
3. To cover the risk of the claimant being found to be sufficiently wealthy (no definition yet) to pay costs
4. To cover adverse costs should the claimant fail to beat a Part 36 offer which can be made at any time (we think defendants will make it very early)
5. To cover fixed adverse costs should the claimant lose (£1,000?)

So, basically, pretty much the same as the current regime save for some part of adverse costs which may be restricted but may not be - and the claimant won’t know which it is until the end of the case anyway.

It appears that the defendant insurance industry has managed to pull the rabbit out of the hat. They have left the claimant facing almost the same risks as before but have made them pay for the premium. Brilliant.

Now the good news is that premiums will have to fall as adverse costs are definitely going to be less. Also, those ‘hold harmless’ cowboy insurers won’t be able to operate any more and inefficient insurers will disappear so only proper insurers will remain operating on a level playing field.

I know this sounds strange but I am actually looking forward to it.

Box Legal Limited: After the Event Insurance Providers
www.boxlegal.co.uk  | daniel@boxlegal.co.uk | 0870 766 9997