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The Great Compensation Culture Myth

February 3, 2011

It looks as though 2011 will be the toughest year yet for lawyers and their clients. Last year, the government, prompted by almost ceaseless lobbying from the insurance industry, decided that the country is in the grip of an American style “compensation culture”.

Instead of taking their time to fully investigate the position and consider the merits of the evidence for such a claim, the Government sought to enlist the help of the recently disgraced Tory Peer, Lord Young, who rushed through a report damning the Health and Safety conscious state and fuelling the commonly held misconception that the personal injury industry had spiralled out of all control.

The reality is that the there really is no compensation culture, certainly not in the hysterical media led sense of the word, fuelled by a small number of strange and incomprehensible cases that simply do not reflect the industry at large.

The evidence itself suggests that over a ten year period from 2000 to 2010, in almost all areas of personal injury e.g. accidents at work, clinical negligence and public liability claims, the number of claims made has in fact declined.

The government has however decided to overlook such statistical data and implement a number of measures designed to make it more difficult for legitimate victims of negligence to claim compensation. They include restricting advertising on television for personal injury lawyers and banning referral fees for cases whereby claimant lawyers pay a marketing fee to a third party in return for a case lead.

At the forefront of the Government’s new proposals is the Justice Minister, Ken Clarke, who has recently backed proposals to severely restrict the use of “no win no fee” agreements between lawyers and their clients and replace it ironically with an American style “contingency fee” arrangement whereby the lawyer takes a proportion of their costs directly out of their client’s damages. The difference in America to here being the significantly higher levels of damages awarded in American Courts.

“No win no fee” funding, in which the lawyer agrees that in the event a claim is unsuccessful he will waive payment of his fees from the client, was introduced in the previous Conservative government (where Ken Clarke was a Cabinet Minister!) to guarantee access to justice after the abolition of legal aid for personal injury claims.

The system has since worked very well and has benefited thousands of genuine injury victims in successfully holding to account negligent parties and securing compensation from their insurers.

The insurance injury has, quite rightly, been forced to pay out not only compensation to these individuals but to also pay their legal costs associated with bringing the claim. It now seems abhorrent to many people that the government wants to force claimants to pay a proportion of their legal fees out of their own damages in order to protect the insurance industry against legitimately incurred legal expenses.

“No Win No Fee” works for a reason. It discourages the pursuit of frivolous claims as if the claim is unsuccessful; the lawyer does not get paid. A number of sensible insurers in this country do not pay out on frivolous claims and in fact defend them robustly, taking many to court where a judge decides the case on its merits. Judges are simply not accustomed to awarding damages in cases where the claim is not legitimate.

The problem occurs where insurers either pay damages to claims that are not legitimate or where the merits of the claim do not warrant payment. To compound matters many insurers robustly defend the wrong cases and are simply not prepared to admit liability when the evidence presented to them warrants an early admission. As a result many claims are dragged out unnecessarily with the consequence being a substantial increase in claimant’s costs.

The worst insurers, and there are many, simply defend cases for the sake of it hoping claimants are discouraged by the delay and either accept less than they are entitled to in law or abandon their case altogether. Claimant lawyers are forever experiencing delays in insurers dealing with cases and then simply offering unrealistically low offers of compensation with little of no explanation as to why. They are then left with no alternative but to take the claim to Court in order to achieve what they believe to be adequate compensation for the injuries sustained. This process is of course frustrating and costly for those involved especially when Judges eventually award damages in line with or above the sensible valuation placed on the claim by the claimant’s lawyer at a much earlier stage in the litigation process.

The insurance industry “wants it cake and eat it”. It deals with claims in a flippant, arbitrary and unjust way and then cries foul with what they perceive to be the unduly high costs incurred by claimant lawyers.

Insurers have a vested interest in discouraging claims and restricting access to justice. It seems for the most part they have been successful. The government has bowed to their demands and if as feared they implement the measures proposed they run a significant risk of under compensating clients and implementing an unpalatable and unworkable system designed only to line the pockets of insurance companies and their shareholders.